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EMF>THE PROTECTION OF THE MORTGAGE BORROWER IN THE EUROPEAN UNION

E M F P U B L I C A T I O N > 2 0 0 7 E U R O P E A N M O R T G A G E F E D E R A T I O N

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DISCLAIMER

CONTACT DETAILS

Annik Lambert Secretary General E-mail: [email protected] Tel: +32.2.285 40 44

Matthias Tiemer Head of Legal Affairs E-mail: [email protected] Tel: +32.2.285 40 40

[email protected]

LIST OF CONTRIBUTORS

BELGIUM Mr Jo T’Jampens Premier Conseiller

E-mail: DENMARK Ms Trineke Borch-Jacobsen Lawyer Realkreditrådet E-mail: [email protected] GERMANY Ms Inga Hager Lawyer Verband deutscher Pfandbriefbanken E-mail:

Ms Katharina Edzard-Heinke Abteilung Kapitalanlagen Gesamtverband der deutschen Versicherungswirtschaft E-mail: GREECE Mr Konstantinos Panagopoulos Hellenic Banks Association E-mail: r SPAIN Mr Juan Garcia Muňoz Secretary General Spanish Mortgage Association E-mail: [email protected] Mr Rafael Sanz Company Director, Servicios Jurídicos de Negocio Hipotecario y Contratación Singular BBVA E-mail: FRANCE Mr Alain Gourio Coordination Juridique Group/Affaires Européennes BNP Paribas E-mail: r Mr Pierre Eric Fuzier Chef de bureau Secrétariat Général Credit Foncier de France E-mail: HUNGARY Mr András Botos Secretary General Association of Hungarian Mortgage Banks E-mail: IRELAND Ms Eimer O’Rourke Head of Retail Banking Irish Banking Federation E-mail:

ITALY Ms Teresa Broggiato Legal Department Italian Banking Assocation E-mail: [email protected] Mr Giancarlo Pompei Head of Credit Department Banca Monte dei Paschi di Siena E-mail: THE NETHERLANDS Mr Wil Filott Assistant General Manager Legal and Tax Department Rabobank Nederland E-mail: l AUSTRIA Mr Christoph Hiesberger Deputy Secretary General Federation of Austrian Mortgage Banks E-mail: at POLAND Ms Agnieszka Drewicz-Tułodziecka President Polish Mortgage Credit Foundation E-mail: PORTUGAL Mr João Dias Garcia Secretary General Caixa Geral de Depositos E-mail: [email protected] SWEDEN Mr Tomas Tetzell Chief Lawyer Swedish Bankers’ Association E-mail: UNITED KINGDOM Mr Andrew Heywood Deputy Head of Policy Council of Mortgage Lenders E-mail:

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3PROTECTION STUDY 07

CONTENT

1. EXECUTIVE SUMMARY 4

2. QUESTIONNAIRE 26

3. NATIONAL REPORTS 33

3.1. Belgium ................................................................................................................34

3.2. Denmark ..............................................................................................................46

3.3. Germany ..............................................................................................................52

3.4. Greece .................................................................................................................64

3.5. Spain ...................................................................................................................71

3.6. France ..................................................................................................................78

3.7. Hungary ...............................................................................................................93

3.8. Ireland ............................................................................................................... 102

3.9. Italy .................................................................................................................. 115

3.10. The Netherlands ................................................................................................ 122

3.11. Austria ............................................................................................................. 129

3.12. Poland .............................................................................................................. 136

3.13. Portugal ............................................................................................................ 148

3.14. Sweden ............................................................................................................ 154

3.15. United Kingdom ................................................................................................. 162

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I. EXECUTIVE SUMMARY

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1. SCOPE

Belgium; Denmark; Germany; Spain; France; Ireland; the UK (for 1st charge loans/FSA regulation under the Financial Services and Markets Act 2000; for 2nd charge loans and consumer credit the Consumer Credit Act

No: > Greece and Sweden: protection of the mortgage borrower is regulated in the Civil Code and in general Consumer Credit legislation.

> Hungary: protection of the mortgage borrower is regulated in the Civil Code, consumer protection legislation, the law on Credit Institutions and Financial Enterprises and the law on Mortgage Loan Companies and Mortgage Bonds.

> Italy: protection of the mortgage borrower is regulated by general contract law and mortgage law;

> The Netherlands: protection of the mortgage borrower is regulated in the Civil Code, the Financial Services Act and through the Code of Conduct;

> Austria: protection of the mortgage borrower is regulated in the general consumer protection law and the Banking law;

> Poland: protection of the mortgage borrower is regulated through consumer protection legislation, the Civil Code and the Banking Law Act.

> Portugal: protection of the mortgage borrower is regulated in the Civil Code.

who acts primarily with an aim, which can be considered to be separate from his commercial or

France; Italy; the Netherlands; Austria; Poland; Portugal; Sweden; the UK (with small exceptions in

No:

Yes, the 2 limitations apply: Belgium; the Netherlands (the housing purpose and a mortgage on a

None of these limitations apply: Denmark; Germany; Greece; Hungary; Italy; Austria and Portugal.

Only one limitation based on the existence of the surety/land charge applies: Spain and Ireland.

Only one limitation based on the housing purpose applies: France and Sweden (for the provisions

In the UK regulation does not apply unless the house is to be at least 40% owner occupied.

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2. PRE-CONTRACTUAL INFORMATION TO BE DISCLOSED TO THE MORTGAGE BORROWER

Yes, extensive information requirements:Ireland; Italy; the Netherlands.

Yes, minimum information: Hungary; Austria; Portugal (the lender must give information on price,

st and 2nd

Yes, on the condition that the product is advertised to the extent that it contains cost information:

> Germany: the APRC must be given;

> Spain: the effective rate of interest must be given with a meaningful example (after

> France: information requirements are even more stringent if cost elements appear in the advertisement i.e. the APRC;

> Ireland: the APRC and extensive information must be given;

> The Netherlands: extensive information, including APRC, must be given on the basis of the Code of Conduct;

> Austria: the APRC and example of calculation of the cost of a loan;

> Poland: the APRC must be given.

No:

Remark:

have limitations based on public morality, good practice, etc. Furthermore, in all Member States, advertisement must comply with legislation on misleading and comparative advertisement.

> in the European Standardised Information Sheet: Belgium; Denmark;

Germany; Greece; France; Hungary; Ireland; Italy; the Netherlands; Austria; Portugal and Sweden.

>

• Belgium: Code and 3 complementary items of information;

• Denmark: Code and a few items prescribed by the Consumer credit Act;

• Greece: Code and a number of items given in a separate document;

• Ireland: Code and numerous items including stringent “risk” warnings;

• Italy: Code and economic additional information;

• The Netherlands: Code and financial instruction leaflet;

• Portugal: Code and some additional information;

• The UK: Code and additional information contained in the UK’s Key Facts Illustration.

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Remark: Amongst the Member States where the Code of Conduct is applied, there is no case where some of the Code of Conduct listed information is not disclosed.

> They do not apply the Code of Conduct as such but they do give the complete information, although not harmonised: Spain (brochure parallel to the general information list, and

Except in Greece, none of the Member States imposes a legal obligation on the mortgage borrower to disclose exact and full information as to his personal circumstances. However, on signing his

the information provided by him is correct. In case he provides incorrect information he may be held liable accordingly.

a formalised offer.

Yes: Spain, France and Ireland.

the UK.

> The following methods of calculation are applied: Belgium (corresponding annual rate i.e.

> The following components are included in the APRC: Belgium (only general management

including any insurance required as a condition of the loan, and any fee paid to a mortgage

No legal obligation, but credit institutions adhering to the Code of Conduct do nevertheless disclose an APRC on a voluntary basis: Greece and the Netherlands.

between the lender and the intermediary imposes the application of the Code of Conduct on the

No: Germany; Spain; Greece; Austria; Portugal.

Remark: not applicable to Sweden, which does not work with credit intermediaries.

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3. PRE-CONTRACTUAL AND CONTRACTUAL OBLIGATIONS IMPOSED ON THE LENDER

3.1 Databases

run by the Bank of Italy; positive database includes loans from EUR 31.000/EUR 75.000

Yes: Belgium and the Netherlands.

• Belgium: minimum 15 days before handing over the mortgage credit offer/consultation valid for 4 months/various penalties if not consulted;

No:to send information to positive database –CIRBE-, not to consult them, but consultation is common

Poland; Portugal; Sweden (but common practice and Recommendations by the Financial supervisory

Yes:

• Belgium: accessible for foreign credit databases under condition that 1. their objectives

equivalent to those of the Centrale des Crédits aux Particuliers, and 2. they communicate their data, on the basis of reciprocity, to the Centrale des Crédits aux Particuliers;

• Denmark, Ireland, Sweden: subject to subscription;

• Spain: accessible to branch offices in Spain

• Austria: but not usual because cross-border mortgage finance is not usual.

No:and Poland.

No Member State imposes a duty to advise, but extensive information is compulsory everywhere

(the Financial Services Act implies that the lender gives advice unless he mentions that he does

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Yes

(a somewhat similar principle does exist in the Consumer Credit Act and is known as “good business

Furthermore, in the event of problems, the courts assess the lender’s behaviour on the basis of the

involves higher levels of responsibility.

Yes

No:

> Belgium; Spain; France; Greece; Hungary; Ireland; Italy; The UK: contrary to good faith and significant imbalance between parties’ rights and obligations to the detriment of the borrower;

> Germany: good faith, excessively detrimental or unclear terms are null;

> Hungary: good faith, if contract clause unilaterally and unjustifiably establishes contractual rights and obligations to the detriment of one of the parties;

> The Netherlands: term that is unreasonable for the consumer;

> Austria: term that infringes law or public order;

> Poland: terms in conflict with public decency and in flagrant violation of the consumers’ interests.

> Portugal; Sweden: term that is unbalanced and contrary to good faith.

Yes: France (the conclusion of the property transaction subject to the condition of the conclusion of

No:Greece; Hungary; Ireland; Italy; the Netherlands; Portugal; Sweden; the UK.

Yesthe creditor to compensate the borrower is limited to the amount of money that the creditor has received.

No: Belgium; Denmark; Germany (only under very restrictive conditions in case of a “commercial

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Prohibited: France; Ireland;

> Belgium: prohibition in principle, but the granting of conditional preferential rates is authorized in the case of mortgage credit. Legislation does not prohibit the linking of services, which results from individual negotiation, but it does prohibit the joint offer to

> France: prohibition in principle, but authorized under certain strict conditions (subject to .

Yes

No, but contractual practice: Belgium; Germany, France; Hungary; Italy; The Netherlands; Austria; Poland; Portugal; Sweden; the UK.

4.CONCLUSION OF THE CREDIT AGREEMENT

Yes:

No: Greece; Hungary; Italy (but the introduction of new transparency rules as of 1 October 2003 makes it compulsory to give the borrower a full copy of the future contract so that he can make a

Yes

No: Italy and the UK.

Yes: the UK.

No:

Poland; Portugal; Sweden.

Yes: • Denmark: the loan offer is binding for the lender for 6 months;

• Spain: the offer is binding for a period of 10 working days;

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• France: the offer remains valid for a minimum period of 30 days. The borrower is not permitted to accept the offer before a period of 10 days has elapsed since the offer. He cannot renounce this right of reflection;

• Portugal: if no deadline is agreed upon, the offer is valid for 5 days.

Belgium (the law provides that the offer must specify its duration of validity, which in

to set out in the mortgage offer how long the offer is valid for – but there is no prescribed period

France.

No, but the offer is binding for a set duration: Belgium; Denmark; Spain; the UK.

: Germany; Greece; Hungary; Ireland; Italy; the Netherlands; Austria; Poland; Portugal; Sweden.

this right is extended to the individual guarantor. The absence of a legal period of validity of the offer

case, the right will be contractually based.

the candidate borrower has returned the signed offer to the lender. However, since

only comes into effect once the funds are transferred;

the loan offer is accepted, the bonds behind the loan are sold, the mortgage has been registered and the funds have been transferred;

the offer is accepted;

the loan deed is executed before a public notary. The creditor is bound by the offer;

both parties sign the contract at the premises of the bank;

the offer is accepted;

the offer is signed or put down in a deed by a notary public;

the funds are transferred;

the funds are transferred;

documents are signed by both parties;

notary deed, depends on the type of agreement

• “Kredit”: the contract has been signed,

• “Darlehen”: the funds have been transferred;

the contract has been signed;

the contract has been signed;

the borrower signs the credit contract;

the agreement and other documents have been executed and the loan transaction has been completed.

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Yes: France.

Functioning:

> France: the link depends on two conditions - the borrower must inform his lenders that he is applying for several loans for the same purchase and only those loans, the value of which is more than 10% of the total credit, are taken into consideration, and has the effect that the failure of 1 loan nullifies all the other loans.

: Denmark; Germany; Spain; Greece; Ireland; Italy; the Netherlands; Austria; Portugal; Sweden; the UK.

Not applicable: Belgium (theoretically the borrower could request the insertion of a suspensive condition relating to the obtaining of complementary credits, but no lender would actually accept to

> a «real» contract: Belgium (in the case of loans, “real” means that the contract comes into

the UK.

> Germany; Greece; France; the Netherlands; Poland; Austria (if the credit agreement is a

> a solemn agreement: Belgium and France (it is the agreement on the mortgage guarantee

With the exception of Hungary and Poland, no Member State allows lenders to unilaterally lay down the conditions of the transfer of the funds:

> Belgium: conditions for transfer of funds set in the prospectus communicated before signature of the contract; the lender lays down unilaterally the provisions of the contract (the models of contracts must be supervised by the control authority but the specific terms

> Denmark; Germany; Spain; France; Ireland; the Netherlands; Austria; Portugal; Sweden; the UK: conditions are laid down contractually.

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5. SURETY AGREEMENTS

Yes:

Belgium; Denmark; Germany; Spain; France (but they must receive a copy of the

Principle for the protection?

• Belgium: the Civil Code;

• Denmark: mortgage banks are required to limit the use of “private” guarantors, and are obliged to keep the guarantor informed of any default on the borrower’s side;

• Germany: specific rules in the Law on Collateral;

• Spain: the principles are the same as in the Consumer Credit Directive;

• Greece: the current trend treats the guarantor in the same way as a consumer so as to ensure that he receives the same protection as the borrower;

the lender must verify his solvency in the same way he does with the borrower;

• Hungary: the same principles as for the borrower apply to the guarantor;

• The Netherlands: the surety must be concluded in writing, it must be limited to a fixed amount and sureties for future debts are strictly regulated;

• Poland: the principles are the same as under item 1.1.

• Austria: the Consumer Protection Act and certain articles of the General Banking Act do not distinguish between borrower or guarantor, but rather whether they are “consumers” as defined by the Consumer Protection Act;

• Sweden: according to a Recommendation by the Financial Supervisory Authority, guarantors shall have all the relevant information concerning their responsibility in case of the borrower’s failure to repay;

• The UK: Under the Consumer Credit Act, a guarantor must be given a copy of the guarantee document, including all the terms of the loan and a prescribed Statement of Rights. This guarantee document must be in a format prescribed by legislation and must be signed by the guarantor. The guarantor must also be given a copy of the actual loan agreement.

• A limit as to the time:

Yes

• A limit as to its amount:

Yes: Austria (indirectly, through the tax regulation as surety contracts are free of charges only as far

No:

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The general principle is that the amount of the surety is limited to the amount of the loan.

• against the guarantor:

Yesthe UK.

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6. RIGHT OF WITHDRAWAL

Yes: Germany (new legislation dated 08/2002 allowing the borrower a right of withdrawal of 2

No legal right but accepted in practice: Ireland.

: Belgium; Denmark; Spain; Greece; France; Italy; the Netherlands; Austria; Portugal; Sweden; the UK.

Remarks:

A right of withdrawal does exist for mortgage credit contract in the conditions set by the doorstep selling directive, but this is a right linked to the selling technique, not to the product.

Deadline:

• Germany: 2 weeks (The lender is entitled to register the fact that the borrower has exercised

• Hungary: the borrower can exercise his right as long as the capital has not yet been transferred;

• Poland: 14 days counted from the conclusion of the contract or provision of information (in

Credit Act.

Requirements:

• Germany: the right of withdrawal must be exercised in writing or by returning the documents obtained relating to the contract. Both parties must make restitutions concerning the benefits received from one another. The customer has to repay the net loan amount received from the bank plus a compensation fee. The bank returns the paid interest and amortisation rates for the period of allocation of the capital plus an adequate yield;

• Hungary: the same rules as for the conclusion of the mortgage credit contract apply;

• Ireland: the borrower must repay the funds and the interest due;

• Poland: a written announcement;

• Portugal: the borrower must repay the funds and the interest due + stipulate reasonable term.

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7. RIGHT OF EARLY REPAYMENT

• Belgium: total repayment always allowed, partial repayment subject to conditions set by law and contract;

• Denmark: in principle always possible through purchase of the bonds on the market, with the exception of non-callable bonds;

• Germany: In the case of fixed interest loans early repayment is only possible if the fixed rate interest period ends before the end of the loan contract at the end of the fixed rate period; the length of this period being determined by the contract; in any case after a period of ten years. In these cases the early repayment of the loan is not subject to an indemnity. During the length of a fixed rate period a mortgage borrower is only entitled to cancel the loan under very restrictive conditions i.e. in case of a legitimate interest and subject to a cancellation period of 6 months. This legitimate interest mainly exists when the property is sold or if the borrower wants to increase the amount of the loan, which the lender refuses. Prepayment of the loan for speculative reasons is not possible. In these cases early repayment is subject to an indemnity.

In the case of a variable interest rate the borrower is allowed to cancel the loan at any time in compliance with a cancellation period of 3 months without paying an indemnity. In addition, the parties are at any time free to change the loan contract by agreement.

• Greece: the terms of the procedure are fixed on a contractual basis;

• Spain: subject to contractual conditions. Maximum amount of the commission: see below.

• France: the contract may forbid partial repayments below 10% of the loan amount;

• Hungary: subject to contractual conditions;

• Ireland: at any time and any amount;

• Italy: subject to the payment of a contractually all-inclusive fee;

• Poland: in case the Consumer Credit Act applies.

• Austria: any time in case of variable interest rate, at the end of contractually set periods in case of fixed interest rate;

• Portugal: all interest must be paid. The credit contract can however stipulate the early repayment and its conditions

• Sweden: possible as far as fixed rate credits are concerned, subject to the payment of an indemnity to the creditor.

No legal provision, but early repayment is always possible: The UK (conditions depend on the

No, but the national code of conduct provides for it: The Netherlands (it covers all costs involved +

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The indemnity covers all the costs incurred by the early repayment: Denmark; Germany; Hungary; Austria; Portugal.

The indemnity is capped / covers an estimate of the cost based on legal method of calculation:

• Belgium: maximum 3 months interests;

• Spain: maximum 1% of the lent capital for variable interest rate loans. Fixed interest rate:

• France: 1 semester of interests on capital still due and only if repayment is not due as a result of events beyond the borrower’s control with a limit of 3% of the capital remaining

• Sweden: limited to an interest difference indemnity in case of fixed interest rate.

Yes

Yesyes, but in practice the only

No: Belgium; Denmark; Greece; Spain; France; Portugal; Sweden; the UK.

Can be transferred, subject to the lender’s agreement: Belgium; Denmark; Germany; Spain; France

Must be repaid:

The loan remains: Greece.

Remark: in Spain the borrower is in all cases always able to subrogate the lender without needing the consent of his current lender.

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8. USURY

Yes: Denmark; Germany; Spain; Greece; France; Hungary; Italy; Austria; Poland; Portugal; Sweden.

Principle:

• Spain: the law of 1905 stipulates the nullity of the loan agreement whenever the interest rate reaches a level markedly higher than the normal market rate for money and is clearly disproportionate to the circumstances of the case or whenever the interest rate becomes significantly higher than the market rate, and it can be surmised that the borrower has been forced to accept this rate increase due to his financial situation, or inexperience or by virtue of him not being of full mental capacity;

• Germany: Case law is derived from Art. 138 BGB. According to a ruling of the Federal Supreme Court, usury occurs if a basic rate set by the Federal Bank which German jurisprudence refers to is exceeded by 100%;

• France: usury is considered to be when the APRC exceeds by more than one third the APRC imposed by credit institutions for the previous quarter for the same operations carrying the

• Hungary: it is considered usury if a contracting party has stipulated an unreasonably disproportionate advantage on conclusion of the contract by exploiting the other party’s situation;

• Italy: The Penal Code punishes “any person who acts in such a way as to be given or promised, in whatever form, for himself or for others, in return for the loan of money or other valuables, interest or other benefits that are usurious”. The law determines a threshold above which interest is always usurious (rate above the average rate published in the Official

that threshold may be usurious depending on circumstances of the loan;

• Poland: if one of the contracting parties stipulates an unreasonably disproportionate advantage on conclusion of the contract by exploiting the other party’s situation, this is considered to be usury. Since 20 February 2006 the Anti-Usury Act is in force;

• Austria: The Usury Act stipulates that the lender must not profit from the exigencies of the borrower and the interest must not exceed an average rate;

• Portugal: The Civil Code specifies that “a loan contract stipulating an annual interest rate, which exceeds the legal interest rates by more than 3% or 5% depending on whether or not an in rem security exists, is considered usurious”. A penalty clause for failure to repay the loan on the due date with a compensatory rate corresponding to 7% or 9% in excess of the legal rate, depending on whether or not an in rem security exists, is also considered to be usurious;

• Sweden: the Law on Contracts stipulates that “when a person exploits the distressed circumstances, lack of mental capacity, irresponsibility or dependence of another, in order to attain for himself….benefits, which are manifestly disproportionate to the compensation paid or promised….such legal act shall not be binding on the person exploited”.

No:

Principle:

• Belgium: According to Penal Law, the lender who abuses the ignorance of the borrower by charging rates of interest, which obviously exceed the normal interest rate and the coverage of the credit risk, is in fact committing a crime;

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• Ireland: Usury would mean excessive or illegal interest;

• The Netherlands: Application of the general principle of good faith;

• The UK: FSA rules make no such provisions. 2nd charge loans regulated under the Consumer Credit Act will be covered by the new “unfair relationships” provisions from April 2008.

Possible consequences:

• Germany: the borrower must pay back the capital and can claim back the interest he has paid, provided it does not date back more than 4 years. Intervention by the Federal supervisory authorities against usury in mortgage credit is unknown.

• Greece: Under civil law, usury results in the contract becoming null and void. Under supervisory law, usury is sanctioned through penalties, usually in the form of fines. There are also penal sanctions for usury.

• Spain: If the court decides that usury is being practiced, they would decide on the interest rate to be applied.

• France: From a civil point of view, excessive interest is automatically charged on normal accrued interest and, in addition, on the capital. From a penal point of view, the penalty for

• Hungary: a usurious contract is null and void;

• Ireland: Money lenders under license from the Consumer Director would be entitled to charge high interest rates. However if they charged excessive interest rates, a consumer could apply to Court to have the rate declared excessive. However this remedy is not open to loans under a credit agreement relating to credit advanced by a credit institution. From a civil law point of view, an excessive rate of interest could be struck down by the Court as being unconscionable and therefore unenforceable.

• Italy: Penal sanction. Civil Law also provides that in case of usury, the clause is void and no interest is due. As for the supervisory regulations, in the case of usurious interest, the Bank of Italy may levy a fine.

• The Netherlands: In the event of uncommonly high interest rates, review could be imposed on the lender on the basis of case law. If the above mentioned conditions are met, the other party is entitled to demand to decrease his performance according to the Civil Code and if this is excessively difficult to null and void the contract;

• Austria: From a penal point of view, there is criminal liability; from a civil point of view, the contract is invalid, and, if a bank is guilty of usury, the supervisory authority may withdraw the concession;

• Portugal: Usury is a penal infringement. On the Civil Code, the contract may be annulled or the usurious legal act may be amended by court decision;

• Sweden: The contract might be declared null and void by the court. Furthermore, the Financial Supervisory Authority could take action against the institution using this kind of conditions;

• The UK: The courts are able to invalidate any mortgage term, which they consider ‘oppressive or unconscionable’.

Remark: Belgian and French legislation both permit the capitalisation of interest, but only once the interest is due for a complete year.

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9. LEGAL CONSEQUENCES IN THE EVENT OF INFRINGEMENT OF THE LOAN CONTRACT BY THE BORROWER

• Belgium: the lender may grant payment facilities to ease repayment. If this is not successful: the National Bank’s central database is informed; increased annual interest is applied; the borrower must appear before the judge of the court of first instance competent in matters of seizure in order for an amicable arrangement to be established and, failing an agreement, the enforcement procedure is initiated. The lender may also enforce all the other sureties available;

• Denmark: at first, a reminder is sent with a warning that in the event of continued failure to pay, the loan is up for repayment;

• Germany: the bank may declare the amount of the loan payable after setting a deadline. The borrower is in default, if he does not meet his payment conditions, he e is obliged to pay default interest;

• Greece: if the amount of the loan already paid out at that time, is more than 50% of the total value, the lender may call in the loan. If two or three installments are not paid, forced sale proceedings are initiated;

• Spain: there is interest on the late payment, and if the situation continues, payment is sought through the courts;

• France: there are two options:

> The lender charges increased interest on the late payment;

> The lender demands the immediate repayment of the loan together with accumulated

• Hungary: Withdrawal, assertion of lender’s claim or the lender may grant a respite for payment. The lender may then resort to enforcement;

• Ireland: the lender will firstly attempt to contact the borrower with a view to resuming payment or re-scheduling the debt. If this is unsuccessful, the lender may choose to enforce the debt;

• Italy: Action for credit recovery is initiated;

• The Netherlands: the lender is allowed to claim the amounts due and payable;

• Poland: the lender may grant a “respite” for payment. According to the Civil Code the borrower is in default, if he does not meet his payment obligations;

• Austria: if several reminders prove ineffective, the mortgage will be subject to early maturity;

• Portugal: the lender can terminate the contract and demand full repayment of amounts due and payable;

• Sweden: if the lender has introduced such a provision in the contract he is entitled to repayment prior to the due date. Otherwise, the normal enforcement procedure is initiated;

• The UK: the lender has the right to foreclose on the loan contract.

• The unpaid interest due: Belgium; France; Ireland; the Netherlands; Austria; Portugal;

• The cost of an external debt collector company: Denmark; Sweden;

• The interest not yet due: The Netherlands;

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• Default interest: Germany; Poland. The interest rate exceeds the basic interest rate by 2.5 %. Other consumer loan contracts: the default interest rate exceeds the basic interest rate by 5%;

• Interest supplements: Belgium; Denmark; Germany; Spain; France; Ireland; Italy; the Netherlands; Austria; Portugal; Sweden;

• Contractual penalties: The Netherlands; Spain (penalties must be stipulated in the contract,

• No supplements in the event of default: Hungary.

• Belgium: the lender may enforce the clause in the credit contract permitting him to call in the loan;

• Denmark: depending on the extent of the neglect, the loan can be up for repayment;

• Germany: the lender may cancel the loan;

• Greece: if the borrower does not take all necessary measures requested, the lender may demand immediate settlement of the debt;

• Spain: the lender may either terminate the agreement early and demand full payment of the outstanding debt or negotiate additional surety;

• France: the lender can either cancel the contract and pursue immediate repayment by taking possession of the property, or negotiate additional surety;

• Hungary: the lender may cancel the loan contract if the condition or loan security value of the mortgaged property permanently deteriorates;

• Ireland: if prescribed in the loan contract, neglect of such a duty would amount to a breach of contract;

• The Netherlands: in principle, the lender can call in the loan but in practice, he seldom does;

• Austria: the lender may be entitled to early maturity;

• Portugal: the lender can demand additional surety;

• Sweden: if the lender has included such a provision in the contract, he has the right to repayment prior to the due date;

• The UK: if prescribed in the loan contract, neglect of such a duty would amount to a breach of contract.

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10. THE NATIONAL LEGISLATION ENTITLES THE LENDER TO SET OR CHANGE UNILATERALLY THE CONTRACTUAL CONDITIONS DURING THE LOAN

In no Member State are lenders allowed to set or change unilaterally the contractual conditions of the contract during the loan. However, in the case of variable rate loans, interest rates may be subject to variations throughout the course of the loan depending on the national regulation and contractual terms.

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11. THE OVERINDEBTEDNESS OF CONSUMERS IS REGULATED BY LAW

Belgium; Denmark; Germany; France; the Netherlands; Austria (covered in the

> Belgium: the Overindebtedness Law aims at the reestablishment of the over-indebted person’s financial position;

> Germany: according to the Insolvency Act, over-indebtedness of natural persons exists when the borrower’s capital does not cover the existing commitments;

> France: Consumer credit legislation lays down a procedure according to which, borrowers in good faith, who are unable to meet their non-professional loan commitments, have the right

of the proposals of this Commission depends on their endorsement by a court. The French legislator has just adopted additional provisions introducing Civil bankruptcy;

> Austria: The regulations for debt settlement for consumers are based on the principle that private people should have the same legal possibilities as businesses to be freed from their debts within a manageable period (within 2 to 7 years depending on the

> Sweden: the borrower can enter into a binding agreement with the creditors on how to repay or restructure the loan, normally within a 5 year period.

No:

12. OTHER PROBLEMS RELATING TO CONSUMER PROTECTION

Yes: Denmark; Hungary; Austria.

> Denmark: the loan must not exceed 80% of the market value of a primary residence;

> Hungary: the value of the principle claim portfolio arising from mortgage loans may not exceed 70% of the total value of the real estate serving as a security on which the loan was granted.

Belgium; Germany; Greece; Spain (however if the mortgage loan is subject to the Law

No:

the Netherlands; Austria; Poland; Portugal; Sweden; the UK (but lenders are under an obligation to

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However, in Sweden banking legislation stipulates that credit institutions must be reasonably sure

necessary.

> Belgium: variation of interest rate + date on which the variation will take place + new amortization schedule;

> Denmark: After the conclusion and execution of the contract the lender must adjust and specify the information given prior to the contract according to the consumer credit act. This is necessary because the exact «price» of the loan cannot be given until after the bonds behind it are sold, and this only happens after the closing of the contract. The information given follows exactly the same pattern, but the postcontractual information is the true information, whereas the precontractual information is the best possible estimate at the time of the offer;

> Germany: the lender is obliged to provide all the information, which is necessary for the execution of the contract, so that the contracting party is able to fulfill its obligations;

> Greece: in specific cases provided for in Act 2501/2002;

> Spain: the lender must inform the borrower of interest rate changes;

> Ireland: a mortgage lender shall in respect of a housing loan, issue to the borrower a statement of the total amount outstanding on the loan on a specified date occurring not more than one year after the making of the loan and at intervals of not more than one year thereafter until the loan is fully repaid, such statement being issued as soon as practicable after the date specified; and must provide specific information in respect of accounts in arrears;

> Poland: According to general rules of law the lender is obliged to give further information which is necessary for the execution of the contract in order to enable the borrower to fulfil his obligations;

> Austria: about every change in the interest rate and annual information about the outstanding amount as well as about annual payments and charges;

> Portugal;

> Sweden: the lender shall notify the consumer of variations in the interest rate or charges. Furthermore, the recommendation the Financial Supervisory Authority stipulates that the creditor shall inform the guarantor if the borrower’s financial situation is steadily deteriorating;

> The UK: the FSA rules require lenders to give consumers specified information at least once a year after the conclusion of their contract.

No:

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Yes: > Denmark: the existence of a commission but not the amount;

> Italy;

> Austria: if the borrower is charged for the commission in addition to the costs mentioned in the contract;

> The UK.

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II. QUESTIONNAIRE

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1. Scope

borrower?

1.2 Do the consumer protection measures only concern loans to private persons?

the existence of the surety?

2.1 Is any minimum and/or compulsory information on the lender and the transaction on offer

2.2 Are there any advertising restrictions imposed on credit institutions?

2.3 Assuming that your national credit institutions apply the Code of Conduct for Home Loans,

information given to consumers according to national legislation or practice. Please indicate if any listed information is not disclosed, and include the reason for that exception. Is there any legal or contractual obligation to disclose exact and full information as to his personal circumstances imposed on the borrower?

mortgage borrower? What is the method of calculation applied? What are the components

2.5 Do these information requirements impact on the credit intermediaries? To what extent?

3.1 Are there negative and/or positive central databases or other sources of data on the candidate borrower, which are accessible to the lender? Is it compulsory for the lender to consult them and what is the consequence if he does not? Is it possible to access databases on a cross-border basis? Under what conditions?

3.2 Does the lender have a legal duty to provide advice to the candidate borrower? What is the extent of this obligation and its possible consequences?

3.3 Is there any kind of responsibility based on the “responsible lending” principle imposed on the lender?

3.4 Assuming that the European Directive on unfair terms was implemented in national law, what

credit, which are forbidden by law?

3.5 Is there a legal link between the goods/services contract and the credit contract? Is there a joint and several liability between the supplier of the goods/services and the lender funding the purchase? What is the extent of this responsibility? Does the borrower have a legal obligation to possibly take action against the supplier before taking action against the lender?

3.6 Is the linking of services to the mortgage credit regulated? Is it forbidden or authorised under a number of conditions?

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4.1 Must the borrower receive a copy of all the conditions of the future credit agreement in the form of a written offer or in any other form? What information must this offer contain? What are the consequences of not complying with this legal requirement?

lays down this standard agreement? What are the consequences of not complying with this legal requirement?

4.3 What rights and commitments arise for the creditor and the borrower from handing over the offer?

linked to the exercising of this entitlement?

procedural requirements to be observed?

4.6 What commitment deadlines apply to the offer?

4.7 When does the credit agreement come into effect?

4.8 In the event that the borrower applies for several credits for one and the same purchase, is there a link between the different credits, according to which, the failure of one credit to be granted would allow him to cancel the others? What are the conditions associated with this link?

4.10 Can the lender unilaterally lay down the conditions, according to which he will transfer the funds to the borrower?

5.1 Do the guarantors come under the same consumer protection law as the borrower? What are the principles for the protection?

5.2 Does legislation stipulate a limit to the surety i.e. a time limit or a limit as to its amount?

against the guarantor?

6.1 After the conclusion of the mortgage credit contract, is the borrower entitled legally or contractually to cancel it, especially in the event that the contract for which the loan has been applied falls through?

6.2 What is the deadline for exercising this right of withdrawal?

6.3 Is the exercising of the right of withdrawal subject to any formal or procedural requirements?

6.4 Is the lender entitled to register in any way the fact that the borrower has exercised the right of withdrawal?

contract?

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7.1 Is the borrower legally entitled to repay early? If this is the case, what are the terms of the procedure?

7.2 Is the lender allowed to charge the costs involved by the early repayment to the borrower? Under which conditions? What is the basis for the calculation of the indemnity?

7.3 In addition to the legally established contractual indemnity/penalties, can the lender claim for further contractual penalties?

7.4 Is the right to early repayment subject to certain conditions and, if this is the case, which conditions?

7.5 Is the lender allowed to suppress the early repayment option under certain conditions and, if this is the case, under which conditions?

7.6 In the event of the transfer of the property, what happens to the loan? Can it be transferred or must it be repaid?

lender or can it be with another? What are the conditions and costs involved?

8.2 Is this important with regard to the mortgage loan?

8.3 What are the consequences of usury from the point of view of civil law and supervisory law?

8.4 Are there any other restrictions applicable to interest rates?

9.1 What happens if the borrower does not meet the payment conditions?

9.2 In the event of default by the borrower, what possibilities does the law give the creditor to claim for the outstanding debt, the unpaid interest due, the interest not yet due, a lump sum or contractual penalties?

9.3 Are interest supplements possible in the event of default?

9.4 What consequences are there in the event of neglect of duty to maintain the building?

11.2 On which principles is it based?

12.1 Are there any legal limits to a maximum loan-to-value ratio and what are they?

12.2 Does the lender come under any restrictions when granting the loan, based on the consumer’s repayment capacity?

12.3 Does the lender have a legal obligation to give further information after the conclusion of the contract?

12.4 Does the lender have any legal obligation to disclose the existence and amount of any commission he would have to pay on the occasion of the conclusion of the loan contract (to an intermediary,

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ANNEX I

Initial information about home loans offered by institutions subscribing to the Code should include or be accompanied by the following information in the same format as that initial information is itself provided:

1. Purposes for which the home loan may be used;

2. Form of surety;

3. Description of the types of home loans available with short description of the differences between

5. An indication of the cost of a typical home loan for the consumer;

6. A list of related cost elements, such as, administrative costs, insurance costs, legal costs, intermediaries costs…;

7. The different options available for reimbursing the credit to the lender (including the number,

9. Whether a valuation of the property is necessary and, if so, by whom it has to be carried out;

10. General information on tax relief on home loan interest or other public subsidies prevailing, or information on where one can obtain further advice;

is available in the institution.

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This standardised information is an integral part of the “Voluntary Code of Conduct on Pre-contractual Information for Home Loans”, a copy of which can be obtained from your lender

Item Description

Up front text “This document does not constitute a legally binding offer.

that the lender would make under current market conditions based on the information

market conditions.The provision of this information does not oblige the lender to grant a credit.”

1 Lender

2 Description of product of This section should provide a brief but clear description of the product.It should be made clear whether it is a mortgage on a property or another commonly used surety.It should be made clear whether the product on offer is an interest only home loan (i.e.

home loan (ie. That it involves paying interest and capital over the lifetime of the home

It should be made clear whether the home loan terms are dependent on the consumer supplying a certain amount of capital (perhaps expressed as a percentage of house

Where the home loan terms are dependant on a third party guarantee, this should be clearly stated.

3 Nominal rate (indicate type This section should provide information on the key condition of the home loan – the interest rate. Where relevant, the description should include details of how the interest rate will vary including, for example, review periods, lock-in periods and related penalty clauses, collars and caps etc.The description should include:- whether or not a variable rate is indexed; and - provide details of indexation, where appropriate.

4 Annual percentage rate of

national regulation or effective rate, where relevant

should be used.

5 Amount of credit advanced and currency

6 Duration of home loan agreement

7 Number and frequency of

8 For repayment home loan, amount of each instalment

9 For interest only home loan: - amount of each regular interest payment; - amount of each regular payment to the repayment vehicle. The lender should provide an indication – real or illustrative - of:

Where appropriate, a warning should be given that the repayment vehicle may not cover the amount borrowed.If the lender provides the repayment vehicle and has included this in part of the offer then it should be clear whether or not the offer is tied to the consumer’s agreement on that repayment vehicle.

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Item Description

10 Additional non-recurring costs, where applicable

A list of initial non-recurring costs which the consumer is expected to pay upon taking out the home loan must be provided. Where these costs are under the direct or indirect control of the lender, an estimate of the costs should be provided.Where relevant, it should be made clear if the cost is to be paid regardless of the outcome of the home loan application.Such costs might include, for example:- administrative costs;- legal fees;- property valuation.Where an offer would be dependent on the consumer’s receiving these services through

11 Additional recurrent costs This list should include, for example:

- building and contents insurance.Where an offer would be dependent on the consumer’s receiving these services through

12 Early repayment The lender should provide an indication of:- the possibility and terms of early repayment;- including an indication of any charges applicable.Where it is not possible to stipulate the charge at this stage, an indication should be

would be payable.

13 Internal complaint schemes Name, address and telephone number of contact point

14 Illustrative amortisation table The lender should provide an illustrative and summarised amortisation table which includes, at least:

-amount of capital reimbursed;-amount of interest;-outstanding capital;-amount of each instalment;-sum of capital and interest.It should be clearly indicated that the table is illustrative only and contain a warning if the home loan proposed has a variable interest rate.

15 Obligation to domicile bank account and salary with lender

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III. NATIONAL REPORTS

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BELGIUM

1. SCOPE

General provisions: art. 1905 to 1914 of the Civil code

- Royal Decree no. 225 of January 7th 1936 (credit portfolio, subject to this old law that is still in

- Law of August 4th

preserving of real property rights, granted to a natural person acting exclusively (“mainly” as from 1st

activities.

The two limitations apply.


By virtue of the LCH, any advertising for mortgage credit transactions must mention the identity or name of the mortgage company. If the advertising comes from an intermediary, this fact must be stated together with the intermediary’s address.

information in the form of a prospectus.

As regards the types of credit offered, this prospectus must contain the interest rate schedule, including all possible rate reductions or increases and all the granting conditions.

By virtue of the executory decrees, the prospectuses must contain at least the following elements:

1. The name of the mortgage company and its address;

2. A description of the types of credit that the mortgage company grants;

3. The interest rate schedule for the different types of credit;

4. For each type of credit, a representative example of the calculation of the total amount to be paid in capital and interests;

5. Where applicable, the interest rate variation terms and conditions;

6. The schedule of charges and fees asked for by the mortgage company;

7. The nature of the contracts, the appending of which is requested by the mortgage company;

8. The date from which the prospectus is applicable.

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The interest rate schedule includes:

1. The periodic interest rates;

2. The corresponding yearly interest rates;

3. All reductions and increases that the mortgage company generally and usually grants or imposes;

4. The conditions for granting the reductions and increases previously referred to;

5. The reference indexes used for interest rate variations.

The information and notes referred to in point 2.1 must be stated in a legible, visible and unambiguous way. The King has the legal power to establish the applicable rules pertaining to advertising, prospectuses and application forms.

on 1st

means of regulations in order to make their transactions compliant with mortgage credit general practice and the general interest of borrowers.

The prospectus includes all the general information provided for by the Code. The general executory decree also provides for three complementary items of information:

- The nature of the contracts whose appending is requested by the mortgage company (see

- The date from which the prospectus is applicable.

Is there any legal or contractual obligation to disclose exact and full information as to his personal circumstances imposed on the borrower?

There is no legal or contractual obligation to disclose exact and full information as to his personal circumstances imposed on the borrower. However, that’s a matter for common liability law. In the application forms the borrower guarantees that the information given is correct.

No. In Belgium there is no system of APRC. However by virtue of art. 47, §4 of the LCH, the King may impose the use of an “actuarial rate” on mortgage companies and intermediaries to make it easier to compare mortgage credits.

In Belgium, by virtue of art. 4, 4. of the LCH, the periodic interest rates (the rate, expressed as a

in which i is the interest rate according to article 4, 4. LCH and n is the number of periods within a

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What are the components included in the APRC?

proceeds of interest, the rate of which is determined by the lender. If during the credit period the borrower uses certain options or requests certain adaptations that incur costs for the lender, these may of course be charged to the borrower by common agreement (explanatory statement for the

The LCH does not provide for any special provisions regarding intermediaries. These intermediaries must of course act in accordance with the law. Art. 47, §1, LCH provides that if advertising material comes from an intermediary, this must be expressly indicated together with the intermediary’s address.


within the Banque Nationale de Belgique.

Consumer credit and mortgage credit contracts are registered when they are granted (positive

and solvency, lenders must consult the CCP prior to concluding a consumer credit contract and making a mortgage credit offer.

The executory decree provides that the lender must consult the CCP:

1. in the case of consumer credit, within a period of twenty-four calendar days prior to concluding the credit contract;

transmitting the mortgage credit offer. This consultation remains valid for four months. If the mortgage credit contract has not been concluded within four months of this consultation, the lender must consult the CCP again. If he does not, various civil and legal penalties are provided for by law.

Foreign credit databases may also receive the information contained in the central database, providing that their purposes, the information registered and the data protection that they provide are equivalent to those of the CCP and that they provide their information to the CCP in return.

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In terms of mortgage credit, there is no legal obligation to provide advice to the candidate borrower. The LCH only provides for an obligation to disclose information.

Such an obligation and responsibility only exists for consumer credit. However, this is provided for by common liability law.

In the sense of the law of 14 July 1991 «on business practices and consumer information and protection», abusive clause is to be understood as any clause or condition which, on its own or combined with one or several other clauses or conditions, creates a manifest imbalance between the rights and obligations of the parties.

The abusive nature of a contractual clause is assessed by considering the nature of the products or services covered by the contract and in reference, when the contract is concluded, to all the circumstances that surround its conclusion and to all of the contract’s other clauses, or the clauses of other contracts on which it depends.

Any abusive clause in the sense of this law is prohibited and null and void. The contract continues to bind the parties if it is possible for the contract to remain viable without the abusive clauses.

The LCH provides that the following are null and void by law:

that it is prohibited to directly or indirectly subordinate mortgage credit to the obligation to buy, exchange or subscribe, in any form whatever, to transferable securities such as bonds, stocks, shares or shareholdings;

granting of mortgage credit may not be directly or indirectly subordinated to the obligation to subscribe to an insurance policy or capital bond or to the creating of a savings fund, unless this is through an attached or an appended contract referred to in the LCH.

If insurance, investment or savings capital is allocated as additional surety other than on the basis of an attached contract, no obligation to pay premiums or perform savings transactions may result.

Furthermore, the mortgage deed cannot stipulate that the borrower’s rights and obligations may be

There is no legal link between the goods/services contract and the credit contract and there is no joint and several liability between the supplier of the goods/services and the lender funding the purchase.

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See answer to question 3.4.

As a lex generalis, the law on business practices prohibits joint offerings. However, the service offering shall not be considered to be a joint offering referred to by this law if it cannot be known by consumers in general, and if it depends on personal elements that the parties negotiate. Furthermore, the LCH governs, in a clear way, as a lex specialis, the joint offering of mortgage credit and insurance. The granting of conditional preferential rates in the context of mortgage credit is authorised by law. The granting and maintaining of preferential rates may be subject to conditions.

The parties may negotiate conditions and obligations covering, in a balanced way, several services of which they know the separate prices. The law does not therefore prohibit all combinations of services, but only those proposed to consumers in general and that do not result from individual negotiation. The parties may then validly negotiate that the waiving of insurance, which may be contracted with an insurance company within the group to which the mortgage company belongs, will result in the loss of the preferential rate.


The LCH provides that the attaching or appending of a contract other than those referred to by the LCH are null and void by law.

In the sense of the LCH, a contract is attached in the event of the «reinstatement of capital» if the borrower contracts the obligation to make payments during the credit period that although usually allocated for the repayment of capital would not cause the corresponding immediate paying up to the lender; the capital is only reduced at the times and under the conditions provided for by the contract or by law.

The reinstatement must be performed via a contract attached to the credit.

This attached contract may only be a life insurance policy, an investment bond or other form of saving scheme.

An «appended contract» in the sense of the LCH is considered such if the borrower subscribes to or keeps an insurance policy in force in order to execute a loan condition whose non-obeyance may result in the collectability of the debt. This attached contract may only be:

- Insurance for the outstanding balance covering the risk of death, usually intended to guarantee the repayment of the credit;

- Insurance covering the risk of the deterioration of the building offered as surety.

- Bond insurance.

4. OUTCOME OF THE CREDIT AGREEMENT

borrower with a written offer containing all the contract’s conditions and the length of the offer’s validity. If the lender does not comply with this obligation, the borrower may repay the credit at any time without having to pay any compensation.

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There is no standard document. However, the following should be pointed out. A mortgage company

and its executory decrees.

The rules concerning registration, the documents and information to be provided and any later changes and the rules relating to the relinquishment of registration and its cancellation are determined by the King.

The King sets the rules for the keeping and transmitting of the documents and information that the OCA considers necessary for the performance of its role.

Accordingly, the executory decree states that companies that request registration must transmit to the OCA, amongst others, the model of the «mortgage deeds» (all the authentic and private deeds

The lender provides the candidate borrower with a written offer that remains valid for two or three months. Once the candidate borrower has accepted the offer, the credit contract is in principle

when the funds are transferred.

The LCH provides that the written offer must specify the validity period. In practice the period set is two or three months.

Through the signing of the offer by the borrower (transmitting of the mortgage company’s copy



“Real Contract”: No, not in the sense of a direct link with the property. Under Belgian law, the real nature of the loan contract relates to the transferring of funds.

In the case of a loan, if there is a contract, for it to be considered real the funds must have been transferred. If a credit opening is granted, the contract exists as soon as the borrower accepts the offer.

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The initiating of the credit contract does not depend on formalities carried out before the solicitor when the authentic deed is drawn up. These formalities merely serve to make the creation of the mortgage opposable (through the formality of registration in the registrar of mortgages’ registers,

Yes


No, the provisions relating to personal and real sureties are included in the Civil code.

for 30 years from the registration date. Its effect ceases if the registration is not renewed before this period expires. The sums insured are established by common agreement between the parties.

Article 2021 of the Civil code: the guarantor is only obliged to pay the creditor in the event of default

right of execution, or that the guarantor is not jointly and severally liable with the debtor.

6.RIGHT OF WITHDRAWAL

No, the LCH does not provide for a right of withdrawal. If need be, early repayment may take place: if the borrower wishes to terminate the credit contract, it will be at the borrower’s cost.


Yes. The LCH does not provide for a procedure.

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Art. 12 LCH - The lender may stipulate compensation in the case of complete or partial early repayment. This compensation must be calculated, at the credit’s interest rate, based on the remainder of the balance outstanding. As regards calculation, if there is an attached contract whose redemption value has not been allocated for repayment, this sum must be deducted from the redemption value. In the case of partial repayment, these rules must be applied proportionally. The compensation may not exceed three months of interest. No compensation is owed in the case of repayment following death, in execution of an appended or attached contract.

No

Art. 26 LCH – The borrower has the right repay all the capital at any time. Failing a contrary provision in the mortgage deed, the borrower has the right to partially repay the capital at any time. The contrary provision may not exclude partial repayment once per calendar year, or the repayment of an amount equal to a minimum of 10 % of the capital. In the case of the reinstatement of the capital through life insurance, the borrower has the following repayment options:

- In the case of total repayment, the borrower may or may not totally or partially allocate the reinstated capital;

-In the case of partial repayment, the borrower may or may not totally or partially allocate the same fraction of the reinstated capital.

The borrower also has the right to take into consideration the part of the contract that is no longer attached to reduce the contract premiums to the amount required to maintain the attached part.

See 7.4

credit. If he wishes to sell the property given as surety he must request authorisation from the lender, who may demand repayment of the credit.

The borrower may, however, ask the lender to transfer the mortgage to another property. The credit continues to exist and the mortgage maintains its rank in the mortgage registrar’s registers.

This also applies if the third-party acting as the “mortgager creator” wishes to sell the mortgaged property that secures the credit.

See point 7.4: the borrower has the right to repay all the capital at any time, for example by replacing

Must it be with the same lender or can it be with another?

Both cases occur.

What are the conditions and costs involved?

The borrower must pay early repayment charges. See point 7.2.

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8. REGULATIONS ON USURY

Not by civil law or supervisory regulation. Penal law punishes the abuse of trust (in terns of interest

exceed the normal interest rate and the of the credit risk is in fact committing a crime. He is abusing the needs and ignorance of borrowers.

See point 8.1

the interest rate variation periods. When there is a variation in the interest rate on the expiry of the periods determined in the mortgage deed, the interest rate relating to the new period is equal to the initial interest rate plus the difference between the value of the reference index published in the calendar month preceding the date of the variation and the initial value of this index.

The mortgage deed must stipulate that the variation in the interest rate is limited, both for increases and decreases, to a difference determined in relation to the initial interest rate. This difference in the event of an increase in the interest rate may not be greater than the difference in the case of a reduction.

interest rate may not increase the interest rate applicable to the second year by more than the equivalent of one point per hundred per annum in relation to the initial interest rate, or increase the interest rate applicable to the third year by more than the equivalent of two points per hundred per annum in relation to this initial interest rate.


The borrower is required to contact the lender as quickly as possible. By common agreement with the borrower, the lender may take steps to facilitate the repayment of the credit, for example by granting payment facilities or extending the credit period. If in spite of the steps taken by the lender, the borrower is unable to repay one or several credit instalments, the consequences may be the following. The lender is obliged to inform the Banque Nationale’s CCP for retail credit of the

If after receipt of a registered warning sent by the lending organisation, the borrower is still unable to pay the sums outstanding, the lender and the borrower must appear before the judge dealing

ahead.

The lender may also enforce all the other sureties available such as the assignment of wages, compensation for sums receivable with the assets deposited with the lender or the seizure of the mortgaged property or any other property belonging to the borrower.

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This issue is not governed by law.

The issue relates to mortgaged property. If the borrower causes a reduction in the value of the mortgaged property, the lender may enforce the clause, generally included in the credit contract that allows him to render the credit receivable.

10. IS THE UNILATERAL SETTING OF AND/OR CHANGING OF CONTRACTUAL CONDITIONS POSSIBLE DURING THE LOAN?

A distinction should be made between unilateral concessions by the lender aimed at streamlining certain contractual clauses, for example, which is allowed at any time, and the unilateral changing of the contractual conditions.

Article 15 LCH provides that the mortgage deed cannot stipulate that the rights and obligations of the borrower may be changed unilaterally.

11. REGULATIONS RELATING TO OVERINDEBTEDNESS

This issue is governed by the law of 5 July 1998 concerning the collective settlement of debts.

An amicable payment plan is negotiated by the debt mediator with all the creditors. If all the parties agree, the plan is approved by the judge dealing with seizures. If an agreement is not reached,

repayment period may be extended. In this case the new repayment period may not exceed the duration of the payment plan, set by the judge, plus half the time until the expiry of the credit contracts.

The judge’s ruling declaring the over-indebted debtor’s petition eligible gives rise to a concourse scenario. The respective position of the debtors is then set irreversibly and the principle of equality applies. No debtor may undertake any step that may contravene the rule of equality. Mortgage mandates can no longer be executed and mortgages can no longer be registered.

The interest rate is suspended with regard to the creditors and all the debtor’s property in principle becomes unavailable.

The concourse and the collective settlement of debts concern all creditors whose debt existed at the time of the ruling. The debts subject to a condition or term are considered to be «existing» debts. This means that no distinction is made between unsecured, favoured, lienor and mortgage creditors.

In view of the collective aspect of the settlement, the individual creditors’ rights of performance are

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suspended. Once the ruling has been made, no seizure for security or seizure followed by execution by sale may take place. This applies to all executory measures relating to the debtor’s patrimony aimed at the payment of monies, including not only seizures, but also, for example, the performance

The effect of the real sureties is suspended for the duration of the legal payment plan, although this measure may not compromise its asset base. This reserve is intended to keep in tact the debtors’ common pledge during the plan.

However, the causes of preference must be taken into account when it comes to distributing the proceeds of the sale of the debtor’s property within the framework of the plan. The law demands such

The mortgage creditors’ and lienor creditors’ rights of performance are subject to the collective settlement. The seizures performed maintain, however, their protective character. They may not however be liquidated for as long as the settlement of debts is applicable.

What if a sale is on the point of coming to fruition at the time of the collective settlement petition? The suspensive effect only comes into force on the date eligibility ruling and not on the date when

To prevent the slightest doubt on this subject, it has been considered preferable to provide that, following the example of bankruptcy law, «if, prior to the eligibility order, the date of the forced sale of the furniture or property seized has been set and advertised, this sale shall take place on behalf of the creditors».

In the event of the revoking of an eligibility ruling or amicable or legal settlement plan by the judge dealing with seizures the creditors recover their right to individually take action with regard to the debtor’s property for the recovery of the non discharged part of their debts.


The LCH does not provide for limits to the loan-to-value quota.

The LCH does not provide for such restrictions. There is a risk of the lender’s liability being brought into question under common law. Practice suggests that credits should not be granted above a

The LCH only provides for the following provisions:

Art. 9 LCH

If there is a variation in the interest rate, the borrower must be informed at the latest at the date on

free of charge, by a new amortisation schedule including the information referred to in article 21 LCH for the time remaining until expiry.

Art. 21 LCH

which takes into account said changes.

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No. This is an aspect of the contractual relationship between the lender and the intermediary of which the borrower is not informed.

We should note in this regard that article 13 LCH provides that no compensation (other than early

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DENMARK

1. SCOPE

The Consumer Credit Act, The Mortgage Credit Act – particular the chapter on best practice and its derivatives in the upcoming new act.

Yes, with very few exceptions, notably if the problem is parallel to anything that might occur in the consumer situation, and the professional in question is for example only an owner operated business.

There are no such limitations.


No. The advertising act has never been completed as far as the mortgage banks are concerned. The marketing act, however, constitutes the framework of the original “Guidelines for good conduct for mortgage banks”, issued in 1996 by the Danish Forbrugerombudsman. This regulation is to be found

See 2.1.

All required information is given, together with a few additional elements that are dictated by the Consumer Credit Act.

It is stated that the information is part of the loan offer and that the information is preliminary. The lender discloses the APRC to the consumer and the applicant is informed that, according to Danish law, standing loans are not granted for housing purposes.

These requirements are binding for the intermediary, to the extent that he is legitimized to issue loan offers.

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A “negative” database exists. It is not compulsory to consult it, but to an extent, it is common practice.

It is assumed that such an obligation exists for the lender. The consequences depend on whether any loss was caused by the advice given or indeed the lack of it.

There is no formal responsibility towards the borrower, however, “irresponsible lending” is sanctioned by the supervisory authorities.

No

There is no such link.

Any services are connected to the handling of the loan.

Yesbanks.

4. CONCLUSION OF THE CREDIT AGREEMENT

Yes, a copy must be provided with all the conditions and terms of the loan, as well as general written material on the general Conditions for the bank etc. If the material is not provided the lender cannot lift the burden of proof regarding the terms of the loan if any default occurs.

There is no standard agreement, but as all the mortgage banks have to comply with the Consumer Credit Act, the information given in the contracts is more or less the same.

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The loan offer is binding for the lender and optional for the applicant.

The loan offer is binding for the lender for 6 months. During this period the applicant can take

this period, but this will be beyond the control of the lender, because it will be caused by changes in the bond rates, etc.

The borrower asks for the loan to come into effect.

If the loan comes into effect, there is no chance of reversal. Until then, there are no deadlines.

When the loan irreversibly comes into effect - the loan offer is accepted, the bonds behind the loan are sold, the mortgage is registered and the amount is handed over to the borrower.

Not in general.

The contract is a “real” contract, as it must be registered on the property.

No, there are some options for the borrower once the conditions for the payment of the loan are met, but these conditions are laid down unilaterally by the lender.


No they do not have the same protection, although mortgage banks are required to limit the use of “private” guarantors and are committed to keep the guarantor informed on any default on the borrower’s side.

No.

This depends on the guarantee construction. As a rule, the lender is not obliged to take action against

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As long as the loan has not come into effect, the borrower may withdraw for any reason. If the purchase contract for the property does not go through and the borrower does therefore not become the owner of the property, there is no basis for the loan.

There is no right of withdrawal.

See 6.2

See 6.2

See 6.2


The borrower is usually entitled to withdraw, unless the loan is based on irredeemable bonds that have to be bought in the market at market rates. Notice must be given in accordance with the current conditions for the bonds funding the loan. Usually notice can be given in writing on a quarterly basis for “pari”.

Yes, the lender can charge the borrower for the costs arising from the early repayment – positive costs and rate difference.

No.

The right to early repayment is subject to the conditions given in the loan concerning the bond that is funding the loan.

No.

The loan must be repaid. The borrower can apply to transfer to a new owner, but the bank is not obliged to agree to the application.

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Yes, the borrower is allowed to remortgage, and it doesn’t have to be with the same lender. The same costs apply as with any other new application for a loan.


No

No

What are the consequences of usury from the point of view of civil law and supervisory law?

The market rates.


repayment.

All outstanding amounts can be claimed for through the formal court system and the mortgaged property can be repossessed.

Yes, a so called “mora” interest.

Depending on the extent of the neglect, the loan can be up for repayment. This is a standard loan condition.


11.REGULATIONS RELATING TO OVERINDEBTEDNESS

No, not yet.

See 11.1.

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Yes, it depends on the property being mortgaged. For example, the loan must not exceed 80% of the market value of a permanent residence.

Basically, the value of the property being mortgaged poses the restriction; for example, the loan must not exceed 80 % of the market value of a permanent residence. In practice, the lender monitors the income etc. so that the loan does not exceed the repayment capability of the borrower.

Yes

The lender or the intermediary must disclose the existence of commission to be paid when the contract is concluded, but not the amount.

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GERMANY

PRELIMINARY COMMENTS

The law governing the loan contract is laid down in the section on „Individual debt relationships” (Einzelne Schuldverhältnisse

Act. In addition, the rules of the „General Law of Contract“ (Allgemeines Schuldrecht) are applicable, as are the provisions of the „Law of Property“ (Sachenrecht) Book 3 of the Civil Code (paras. 1113 to

In German Contract Law, the principle of contractual freedom applies, i.e. many legal provisions may be replaced or supplemented by agreement between the parties (either individually or by using

through the so-called “general business conditions” (Allgemeine Geschäftsbedingungensupplier.

1. SCOPE

Credit Act, and certain provisions in the “General Law of Contract”, especially articles 355 to 359 of the Civil Code, apply to loan contracts with consumers. Articles 305 to 310 of the Civil Code (the

contracts with consumers.

The consumer protection measures laid down in articles 491 to 498 and 506 are especially designed for loans to consumers. According to article 13 of the Civil Code, which complies with the meaning of the Consumer Credit Directive, consumers are private persons who take out a loan for private purposes.

Consumer protection measures are generally neither limited to the purpose of the loan nor to the existence of a surety. The Civil Code does not distinguish between the different purposes, for which

Only in one exceptional case are consumer protection measures limited to the purpose of the loan; this is where the founder of a new company takes out a loan to start his own business (article

these provisions include credits secured by a mortgage when granted to consumers. However, for mortgage loans, there are several exceptions permitting special conditions relating to the mortgage credit.

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Credit institutions are not in principle subject to any special provisions regarding their advertising.

inter alia misleading information is to be refrained from and advertising may not contravene the

On the basis of the newly formulated regulation on the quotation of prices of November 2002 (Preisangabenverordnung, PangV

The regulation on the quotation of prices stipulates that prices stated in the advertising have to be legible and discernible in the advertisement or offer.

Almost all credit institutions in Germany have adhered the Code of Conduct and disclose the information listed under the Code’s general information list and the European Standardised Information Sheet. There is no additional information, which is required by German legislation.


There are no legal obligations to disclose such information. With the credit application, the lender

circumstances.

has to be disclosed in the copy of the contract given to the borrower.

The method of the calculation applied is laid down in the annexe of the regulation on the quotation

Components included in the APRC are: all costs related to the credit contract, for example, the nominal interest rate, service fees and the disagio, with the exception of costs relating to third parties.

The calculation of the effective annual rate of interest, i.e. the “initial effective annual rate of interest”, complies with art. 6 of the regulation on the quotation on prices of November 2002. In the case of

to be indicated in a percentage rate of the loan as an effective annual interest rate, Thereby the disagio, service charges or other surcharges or discounts are to be allocated over the period, while

of the term and costs of third parties are not to be included in the calculation.

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There are privately organised databases like the “Schufa” in Germany. The Schufa works together with its contractual parties such as credit institutions, insurance companies and other companies and grants information about potential borrowers on a mutual basis. According to the contract between the Schufa and the contractual party, the Schufa receives and provides positive and/or only negative data concerning natural persons. Contractual partners obtain information only when they satisfactorily show their legitimate interest according to the German Data Protection Act (Bundesdatenschutzgesetzconsent that information as to his personal circumstances is forwarded to as well as recovered from the “Schufa”. Besides this information transferred by the contractual partners, the “Schufa” also disposes of data coming from public registries.

There is no legal obligation to consult this database. However, on the mutual basis of the contract with the Schufa, the lender is obliged to provide the Schufa with data concerning its clients.

The Schufa does not have databases in other member countries but it works together with partners in

partners obtain information only in the case of a legitimate interest according to the German Data Protection Act.

product best suits his needs. In exceptional cases, there might be an obligation for the lender to inform the borrower about important circumstances relating to the contract which he ignores. According to the Code of Conduct, the lender is only obliged to give the aforementioned pre-contractual information.

German Law does not foresee any form of legal duty, which can be compared to the principle of “responsible lending”. Both contractual parties are entirely responsible for their decisions.

Article 242 of the Civil Code. Apart from this basic rule, for the majority of loan contracts, “general business conditions” of the supplier apply. For these general business conditions, special provisions are laid down in articles 305 to 310 of the Civil Code, the former AGB Act. According to article 307, clauses which are excessively detrimental or not transparent to the contractual partner of the supplier are null and void.

void, but there are no typical terms for mortgage credit, which are forbidden by law.

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verbundener Vertrag

that both contracts complement one another as part of a commercial or legal unit (wirtschaftliche Einheit

- A joint and several liability between the supplier of the goods/services i.e. the seller of the property and the lender is stipulated in article 359 of the Civil Code. According to this regulation the consumer can refuse the repayment of the loan, insofar as he can make objections against the linked contract.

- No, but before the court is able to take a decision on the right of the consumer to refuse the repayment of the loan, it has to ascertain whether the objections concerning the linked contract are legitimate.

The regulations on combined contracts only apply to mortgage credit contracts since 01.08.2002

were not applicable on mortgage credits before.

The linking of services to the mortgage credit is now regulated in article 358 par. 3 sentence 3 of the Civil Code. This regulation stipulates very restrictive conditions: According to this article a commercial unit of a mortgage credit contract and a property purchase contract only exists if the

borrower or if he acts like a vendor concerning the planning, marketing or realisation of the project. Only if according to art. 358 par. 3 sentence 3 a commercial unit exists article 359 of the Civil Code applies, which means that the consumer can refuse the repayment insofar as he can make objections against the linked contract.

contract. According to Art. 492 I No. 6 of the Civil Code the costs of a residual debt insurance (Restschuldversicherungthe loan contract.

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A loan contract comes into effect like any other contract by offer and acceptance. The offer may be made either by the bank or by the borrower. The advantage for the bank of an offer made by the

interest rates, it can declare acceptance at the actual interest rates. This, however, requires renewed

an electronic form is not possible. Offer and acceptance must tally with one another and be declared individually in simultaneous presence or in absence. The requirement of the written form forces the parties to make identical declarations and is supposed to guarantee a high level of consumer protection.

contain various elements of information, such as the net loan sum, the repayment terms, the terms of redemption, the collateral, the interest rate and the annual percentage rate of charge.

The contract is null and void in the event of failure to observe the written form and in the case of

If the loan has been disbursed, the credit contract becomes effective albeit failures concerning form and information requirements with the following provision: If the nominal interest rate, the effective interest rate or the total amount is not indicated, the interest rate is reduced to the legal interest rate of 4% p.a. If the effective interest rate is indicated at too low a level, the nominal interest rate

However, German credit institutions have, at least for certain areas of their sets of agreements,

individual institutions are however not obliged to use these specimens, although in practice they rarely depart from them.

In the case of an offer made by the bank, the borrower is informed about the duration of the offer. Rights and commitments do not arise until the contract is concluded. The lender is then obliged to

borrower is obliged to pay the interest rate and the amortization rates according to the amortisation plan.

Provisional offers only serve for information purposes and do not give rise to rights or commitments.

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case of an offer made by the bank, the borrower is informed about the duration of the offer (see

If the bank makes the offer, the borrower accepts the offer by countersigning it. If the borrower makes the offer, the bank accepts it by separate written acceptance. The formal provisions (see

and the formal requirements concerning the conclusion of the contract, there are no further formal or procedural requirements.

If the bank makes the offer, there are no legal provisions for deadlines. In general, however, the bank will not commit itself for longer than 2 weeks in view of possible risks of interest changes. If the borrower makes the offer, the deadline may not be too long. According to case law, a 4 week or 1 month commitment is still permissible.

Every contract, regardless of its type, comes into existence through offer and acceptance. The date of the loan disbursement is irrelevant.

The German Civil Code does not provide such a link between different credits.

According to the wording of art. 488 par. 1 BGB, a loan contract is a consensual agreement. After the conclusion of the contract, the lender is committed to disburse the agreed loan sum to the borrower. The borrower is obliged to pay the interest rate and the amortization rates at maturity.

The bank may therefore only refuse to pay out if, after the contract has been concluded, the borrowers’

the loan.

As already mentioned above, as a basic principle, offer and acceptance of a contract have to tally with one another. Deviation from the basic contract elements as stipulated in art. 492 BGB (see point

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The consumer protection laws are incorporated into the German Civil Code and apply solely to the borrower of a credit contract. The guarantor of a mortgage collateral is protected by special rules laid

As far as the mortgage loan is concerned, there are no such limits contrary to the debt guarantee («Bürgschaft

There is no special legal obligation in the case of a loan contract secured by a mortgage collateral.

Bürgschaftthe guarantor is according to art. 771 BGB allowed to refuse payment as long as the creditor has not tried any enforcement procedures against the borrower (Einrede der Vorausklage


effect on 1 August 2002, allows a right of withdrawal for the borrower in the context of a mortgage

can only be individually contracted until 30 June 2005 as an interim regulation (art. 506 par 3

The right of withdrawal must be exercised within a period of two weeks, art. 495, 355 par. 1 BGB.

starts to run if the customer has been informed clearly by the bank of his right of withdrawal. If the information of the customer’s right to cancellation takes place after the conclusion of the contract the

The right of withdrawal expires not later than 6 months after the conclusion of the contract. It does not expire at all if the customer has not been informed about his right to cancellation (art. 355 par.3

According to art. 126 b BGB the customer has to exercise the right of withdrawal in textual (written

The fact that cancellation has taken place can be registered within the bank. Only the fact that the contract has been cancelled will be communicated to external data banks, i.e. the expiry of repayment of a loan previously registered.

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In the case of withdrawal, according to art. 495; 355; 346 BGB both parties must make restitutions

loan amount, which he had received by the bank plus a yield customary in the market (art. 346 par.

period of allocation of the capital plus an adequate yield.


cases in which the borrower is allowed to cancel the loan and to repay the loan early without paying

1. Fixed interest rate loans

- in any case after a period of ten years.

loan under the conditions of art. 490 par. 2 BGB, i.e. in case of a legitimate interest and subject to a cancellation period of 6 months. This legitimate interest mainly exists when the property is sold or if the borrower wants to increase the amount of the loan, which the lender refuses. Prepayment of the loan for speculative reasons is not possible.

BGB.

2. Variable interest loan

In the case of a variable interest rate the borrower is allowed to cancel the loan at any time in compliance with a cancellation period of 3 months without paying an indemnity (art. 489 par. 2

In addition, the parties are at any time free to change the loan contract by agreement.

The right of early repayment can only be exercised if the borrower compensates the bank for the

The borrower has to compensate the difference between loan interest rate of the borrower on the one hand and the reinvestment rate in the case of investment in «Pfandbriefe» with the same duration plus the margin on the other hand. Additionally, the bank can demand a service charge of up to 250 EUR. Expenditures and the credit risk the bank would have taken in case of continuity of the contract have to be discounted.

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Outside of the consumer protection area such a claim is imaginable provided that a contractual penalty is stipulated by the parties in an effectual and permissible way.

The right of early repayment can only be exercised under the conditions mentioned above (see

If the borrower sells the property, he can keep up the existing loan contract on two conditions: First,

collateral providing that the mortgage is valuable and transferable to the new property.

Grundschuldremains and can be reused at any time by the same bank and the borrower/seller if a new loan contract is concluded.

If the borrower sells the property, he is free to choose whether or not to maintain the contract with his bank. Yet if the borrower/seller enters into a contract with a new bank, the land charge remains as such. The new lender must in this case only be registered as a new creditor. This alteration is less expensive than a cancellation of the collateral or the provision of new collateral.


Case law on usury is very extensive relating to the so-called life purchase credit. This refers to the

secured by a mortgage. Due to the high risk of default, interest rates were sometimes very high. Case law on this is derived from para. 138 of the Civil Code, according to which a legal transaction, which is contra bonos mores, is null and void. After many years of varying case law on this subject, German jurisprudence refers to a statistical table of the German Federal Bank (Bundesbank

of the individual institutions only deviate slightly from one another.

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In the case of usury, the borrower must pay back the capital and can claim back the interest he has paid, provided it does not date back more than 4 years. Intervention by the Federal supervisory authorities against usury in mortgage credit is unknown. In principle a primary task of the Federal supervisory authority of the credit sector is to monitor the structure of owns funds and the liquidity of credit institutions and not their good conduct in civil law. In such cases, the Federal supervisory authority will only intervene in exceptional cases.

The regulation of interest rates by the authorities does not exist in the Federal Republic. Interest rates are subject to free competition.


If the borrower does not pay his instalments, interest and capital repayment promptly, the bank may declare the amount of the loan payable after setting a deadline. According to para 286 subpara 2 Civil Code the borrower is in default, if he does not meet his payment conditions (without further

para 1 point 2 Civil Code the interest rate exceeds the basic interest rate by 2.5 %. In case of other consumer loan contracts, the default interest rate exceeds the basic interest rate by 5%. The bank is allowed to cancel the contract and to demand a prepayment penalty after setting a deadline. (para

There are no legally established contractual penalties in Germany. The contractual agreement

prepayment penalty. The possibility to demand a higher or lower compensation is based on general

subpara 1 point 3 Civil Code.

The calculation of default interest of consumer loan contracts is based on para 497 of the German Civil code. When it concerns consumer loan contracts which are secured by mortgage bonds, the interest rate exceeds the basic interest rate by 2.5 %. In case of other consumer loan contracts, the default interest rate exceeds the basic interest rate by 5 %. The basic interest rate is adapted every six months. The adjustment conforms to the interest rate of the European Central Bank for main

disadvantage.

Otherwise the bank may cancel the loan.

The neglect of his duties is regarded as an important infringement of the contract.

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only grant the loan at a variable rate of interest. In such cases, the customer is entitled to repay at

Such loans are granted by all credit institutions banks (by mortgage banks and insurance companies

at the time. If the debtor does not agree to the conditions, he can refuse the amendment, but must then repay the loan. According to a new Federal Supreme Court ruling, the lender is to be given a period of approximately four weeks for to do so.

A right of termination by the borrower during this part of the loan is precluded. However if one of these parts lasts for more than 10 years, then he has a right of cancellation after 10 years (para

Previously, only institutions issuing mortgage bonds could preclude in the long term the borrower’s right of termination.

The provision of para 490 subpara 2 of the German Civil Code standardises the borrower’s right of

With regard to Basel II the Association of German Mortgage Banks has stipulated that the lender should have the unilateral right to adapt the interest rates of a loan, if the rating of the borrower

11. REGULATIONS RELATING TO OVER-INDEBTEDNESS

Over-indebtedness is regulated in the insolvency act, Insolvenzordnungproceedings for consumers are regulated in art. 304 ff Insolvenzordnung305 InsO insolveny proceedings only take place if extra-judicial settlements have failed.

The borrower has to present a list of assets and a table to adjust his liabilities (art. 304 par. 1 no.

creditors accept the plan, the acceptance is regarded as a settlement, the creditors have a title for

accept the plan, the insolvency proceedings start.

The insolvency proceedings aim at promoting extra-judicial settlements before insolveny-proceedings can start.

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to grant a credit is the sole responsibility of the bank granting the credit. According to supervision

of proper management lead to a limitation in case of granting a credit. The supervision law stipulates in § 18 of the German Banking Act, that in the case of credits of more than EUR 250.000, the disclosure of economic relations is necessary. Credits below this threshold are also, without explicit obligation, not treated differently.

of the borrower the loan contract is legally valid given that the conclusion of the contract is based on

In any case, strict mortgage protection provisions make sure that the creditor‘s access to the borrower’s assets is limited. The bank that grants a credit has therefore special interest in closing contracts which are only suitable for borrowers which disclose an excessive demand of the borrower.

The Federal Supreme Court has furthermore, in particular cases, assumed immoral conduct. According to this, contracts of surety-ship or assumption of liabilities are not workable if they represent a

with the relation between revenue and assets. The guarantee or joint-liability of the spouses can be immoral conduct inasmuch as between the guarantors and the main borrower exists an emotional bond and if the guarantor can not even pay the running interests of the main dept and if no personal advantage of the guarantor with regard to the taken credit is obvious.

conduct of the loan contract. In doing so, the economic freedom of the borrower is so much limited,

According to general rules the creditor is obliged to autonomously provide all the information which

obligations. Additionally, the German credit sector has engaged itself in the context of a voluntarily code of conduct for mortgage loans to provide broad, pre-contractual information in a standardised and comparable way.

No such regulations exist in Germany.

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GREECE

1. SCOPE

consumer, including the mortgage borrower, is however protected by strict banking supervision, a

for the information to be provided to the clients of banks regarding their transactions with banks (Act

The above consumer protection measures concern loans to both private and legal persons.

The consumer protection measures are not limited by the purpose of the loan or the existence of sureties.


According to the Act of the Governor of the Bank of Greece 2501/2002, the elements of advertising must respect the pre-contractual information, which according to the Act, should be provided by

According to Greek legislation (art. 9 Law 2251/1994, art. 13 par. 5 Law 2076/1992 and the Act

precise and comprehensive, true and not misleading.

Greek banks, which are members of the Hellenic Bank Association and provide home loans, apply the Code of Conduct for Home Loans and they disclose all information listed under the Code’s general information list and European Standardized Information Sheet. Additional information given to

the start of the period and the period in which the rates of the loan fall, the base of calculation and

conditions and the charges if applicable in the event of overdraft by the borrower of the contractual terms of the loan and in the event of early repayment, the method of calculation of charges. If applicable, information is also disclosed regarding the foreign exchange risk in the case of loans denominated in a foreign currency or with a foreign currency clause, the possibility and the cost of using foreign exchange risk and interest rate risk mitigation techniques.

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According to the Act 2501/2002, there is a general obligation, in the framework of the establishment of interest rates by the bank, for the borrower to provide exact information as to his personal circumstances.

Greek banks, which apply the Code of Conduct for Home Loans, disclose the effective interest rate of charge. On the contrary, there is a legal obligation to disclose the APRC for consumer credit.

There is no legal obligation regarding these information requirements for credit intermediaries.


There is a negative central database and recently, a positive central database has been set up. Both of them are kept by “Teiresias”, a corporation established on the initiative of the Hellenic Bank Association. It is not compulsory for the lender to consult these databases. It is not possible to access databases on a cross-border basis.

The lender does not have a legal duty to provide advice to the candidate borrower.

There is no responsibility based on the “responsible lending” principle imposed on the lender.

General terms of transactions, which cause an imbalance in the parties’ rights and obligations to the detriment of the consumer are forbidden and they are null and void. According to a very recent decision of the Court of Appeal of Athens, some terms in mortgage credit are forbidden by law, because they are regarded as being abusive or illegal. However, this case is not closed before the Greek tribunals.

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In mortgage credit, there is no legal link between the goods/services contract and the credit contract. There is no joint and several liability between the supplier of the goods/services and the lender funding the purchase.

The linking of services to the mortgage credit is not regulated.

with regard to mortgage credit. Other kinds of insurance are voluntary.


Apart from the obligations of the Code of Conduct on Home Loans, according to the Act 2501/2002, banks are obliged to notify their clients of all the conditions of the future agreement and to give them a copy of the contract after its conclusion. The Bank of Greece is able to impose sanctions on banks, which do not comply with the above legal requirement.

There is no such obligation.

Not applicable.

This depends on the contractual terms.

Not applicable.

Not applicable

The credit agreement comes into effect when both parties sign the contract on the premises of the bank.

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If the borrower wishes to take out a second loan for the same purpose, he signs a second contract, etc. A second or subsequent loan may be granted if the credit limit has not been reached.

It is a consensual contract.


There is a trend in recent jurisprudence to consider the guarantor as a consumer, so that he comes under the same consumer protection law as the borrower.

There is no such legislative stipulation.

According to Art. 855 of Civil Code the guarantor is entitled to refuse payment of the debt until the creditor has attempted to take possession of the debtor’s principal property without success. In fact,

rights.


The borrower can cancel the loan application or contract at any time up until the point when the mortgage is registered. The cancellation of the application results in the loss of all expenses defrayed by the lender in the intervening time, which the borrower has paid or still has to pay.

Any point up until the mortgage is registered in the mortgage register.

It must be submitted in writing.

See 6.1.

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According to the Act 2501/2002, the borrower is entitled to repay early. The terms of the procedure

According to the Act 2501/2002 the lender is allowed to charge the costs involved by the early repayment to the borrower under the condition that he explains pre-contractually the conditions and the terms of the early repayment and the method of calculation of the charges. According to a recent decision of the Court of Appeal of Athens, the lender has to explain clearly and precisely in the contract the charges to be paid in case of early repayment, the criteria on which the charges are imposed and the method of their calculation.

Not applicable.

It depends on the contract.

Not applicable

repaid; the new owner simply runs the risk of the forced sale of the property on creditor’s initiative


According to Greek law, there is a distinction between bank interest rates and legal interest rates.

of the Bank of Greece 2286/1994, this kind of interest rates is set by banks without prejudice with regard to the minimum respective rates in force at the time.

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The consequence of usury under civil law is that the contract becomes null and void. The consequences

usury.


amount paid out until that point is more than 50% of the construction work carried out, the lender may call in the loan. Moreover, if two or three instalments are not paid, forced sale proceedings are initiated.

According to Art. 1284 of Civil Code, if the mortgaged property is likely to fall in value, the creditor can ask the debtor to take all necessary measures to avoid that risk or else he is entitled to demand immediate settlement of the debt.


The unilateral setting of and/or changes to the contractual conditions during the loan are not


No

Not applicable


No

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There is no relevant legislation.

Yes

No.

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SPAIN

1. SCOPE

- Order of May 5th

- Law 7/95 about Consumer Credit

- Order of December, 12th 1989, about commissions, fees, and information to consumers.

th

mortgage loans, consumer protection only protects private persons, who are acting for purposes which can be regarded as outside his trade, business or profession.

th about mortgage markets.

The Order of May 5th 1994 is applied when one aspect of the loan is that it is a mortgage loan with a house as a guarantee. The measures adopted in the law 2/94 are not limited by the purpose of the loan.


There is no minimum or compulsory information, except for the effective interest rate.

When advertising concerns the effective interest rate of a product, it must be authorized in advance by the Bank of Spain.


To guarantee the correct information and protection of the people contracting mortgage loans, since 1994, Spanish regulations compel all credit institutions to inform any persons requesting mortgage loans by providing them with:

1. A brochure, whose minimum contents are similar to the information of the European Standardised Information Sheet

2. A Binding offer

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Once the real estate appraisal has been effected and, if appropriate, the legal situation of the property

to make a binding loan offer to the borrower or, if the case arises, to inform him of the refusal to grant the loan.

clauses included in the loan deed. The offer must be signed by a representative of the institution and, unless extraordinary circumstances occur or these are not imputable to the institution, it will have a period of validity of not less than 10 working days from the date of delivery.

Yes. The binding offer must include the “effective transaction cost”, calculated in accordance with the Bank of Spain’s regulations.

The components included are:

- Insurance against unemployment: when imposed by the lender

The requirements for giving the effective interest rate are set out in a regulation of the Bank of Spain.

No.


Yes

No. The lender doesn’t have this legal duty. If the lender gives wrong advice to the borrower, the court could sanction him.

No.

No, there are no typical terms for mortgage credit. “Unfair terms” are those which are against good faith and result in an imbalance between the parties.

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Yes, in Law 7/95 on Consumer Credit, which is similar the Consumer Credit Directive.

No.

Yes, property damage insurance.


Yes

clauses of the public deed to be signed.

if any, and of his right to refuse the transaction.

The borrower is free to accept or reject the offer. The creditor is bound by the offer.

Yes, because the offer must have a period of validity of not less than 10 working days.

The borrower has to sign the offer and return it to the lender.

The offer must have a period of validity of not less than 10 working days.

The agreement comes into effect, when the loan deed is executed before a Public Notary.

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No, not as a legal obligation, but a link between the different credits could be agreed in the contract.

through a public deed and inscribes it in the Land Registry.

No.


Yes. The principles are similar to those in the Directive on Consumer Credit.

There are no limits.

No, because normally it is agreed in the contract that the guarantor is jointly responsible. If not,

and afterwards, if there is an outstanding debt, taking action against the guarantor.


No. There is no “cooling off” period.

There is no deadline.

The borrower must cancel in writing according to the notice required in the contract.

No.

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Yes. The borrower must apply for an early repayment in writing according to the notice required in the contract.

No. The cost is according to the clause of the contract, and established by the law, in the mortgage loans at variable interest, that the creditor shall not receive, as a commission for early repayment of a loan, more than 1% of the paid off capital even though a larger commission could be agreed.

No.

writing one month before the date of payment. He is furthermore and is not permitted to repay less than 1.000 euros each time, according to the notice required in the contract.

The loan can be transferred and the lender can choose to accept the new borrower or reject him.

Yes

subrogation must be effected through a public deed, stating the intentions of the borrower, according

and Registry fees.

It can be with the same lender or with a new one. The buyer of the house pays the price to the seller, minus the outstanding value of the mortgage loan, and becomes the new debtor, on the condition of the agreement of the creditor.

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The law of July, 23rd 1905 states:

The loan agreement will be null and void in the event that the interest rate reaches a level markedly higher than the market normal rate for money and is clearly disproportionate to the circumstances of the case or the interest rate itself becomes enormously higher than the market rate, and it can be

situation, or inexperience or by virtue of his not being of full mental capacity.

The courts decide if the interest rate is against the law of July, 23rd 1905.

No. Normally the competence between credits institutions avoids such cases of usury.

If the court decides there is usury, they would decide on the interest rate to be applied.

There are no other restrictions.


There is interest on the late payment and, if the situation continues, payment would eventually be sought through the courts.

The right of the creditor to claim outstanding debt, the unpaid interest due, a lump sum, etc., is only granted by court order.

As it said in paragraph 9.1., there is interest on the late payment.

The creditor may terminate the agreement early and demand full payment of the outstanding debt. The borrower would eventually be taken to court, and the court will give its decision about this matter. The lender can also request that the borrower provides an additional mortgage guarantee.


No.

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No.


No, but if the mortgage loan is subject to the Law about Mortgage Markets, the maximum loan-to-value ratio is 80 %.

No.

No, the lender only has to inform the borrower of changes in variable interest rates.

No. All commissions must be agreed in the contract.

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FRANCE

1. SCOPE

Consumer protection in the area of loan originates from laws dated 10 January 1978 and 13 July

Book III of the Consumer Code is devoted to indebtedness.

Title 1, «Loan», deals with:

- Consumer loan (Articles L.311-1 et seq Consumer Code – formerly the law dated 10 January

- Mortgage loans (Articles L. 312-1 et seq of the Consumer Code – formerly the law dated 13

A third chapter contains provisions common to these two types of loan (Articles L. 313 et seq of the

In certain cases, they may come under Chapter 1, relating to consumer loans (Articles L. 311-1 et

not concluded by a deed executed and authenticated by a notary (these loans are not covered by a

The Consumer Code will be quoted under the item number reference, followed by Consumer Code. The letters L. and R. preceding the number of the items indicate the nature of the legislative or

the « chapter » to which the article pertains.

The Civil Code will be quoted under the item number, followed by the reference Civil Code.

It is generally permitted that consumer-protection measures relate to loans to natural persons.

but not for loan operations themselves. However, as far as property loans are concerned, the following are expressly excluded from the purview of the law:

- acquirers who accomplish their operations in the context of their occupation (promoters, estate

procure in any form whatever buildings or fractions of buildings... in ownership or usufruct.

Individuals, who make investments in rented properties by way of assets, are therefore protected, unless the size and number of the investments in rented properties puts them on a par with professionals.

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- the acquisition in ownership or usufruct of property for residential use or for business and residential use;

the attribution in ownership or usufruct of such real property;

- Outlays relating to their construction, repair, improvement, upkeep, when the total amount of such outlays is greater than EUR 21,500;

- the purchase of plots intended for the construction of said properties.

are made for valuable consideration, in the form of a loan, without distinguishing between main residences and mixed business-dwelling residences.

protection of the borrower.

not to the purpose of the loan, but rather to its amount.


Art. L. 312-4 to L. 312-6 of the Consumer Code provide for dual advertising:

- an impersonal and general advertisement, increasing public awareness, supplemented by brand advertising, which may only specify the identity of the lender, and the nature and purpose of the loan;

- a personal advertisement on a targeted product. The latter must, if it includes one or more statistical elements, mention the duration of the loan, the total cost and the total effective rate of the loan.

Any indication, which is misleading, is sanctioned by the courts. Such an act constitutes « deceptive advertising ».

However, any advertisement or information document handed to the borrower must indicate:

- The fact that the sale is subject to the obtaining of the loan, and that if it is not obtained, the

Finally, any advertisement treating monthly repayments in the same way as rents or making reference,

whole term of the contract, is prohibited.

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A decree dated 15 March 1968 governs representations by way of “propaganda or advertising”, with a view to offering, inter alia, money loans. This decree states notably that persons, who live or

advertisements must disclose the identity of the person, from whom the offer emanates (corporate

in the documents made available to the public by the institutions adhering to the Code.

The information on the European Standardised Information Sheet is obligatory within the framework of the previous offer.


The borrower is not subject to particular legal obligations, which would oblige him to provide accurate and full information concerning his personal situation. Nevertheless, a range of information is required on the occasion of his application for a loan, and it is customary for documents to be produced as

process an application for a loan, if the borrower does not communicate the necessary data. These practices are reinforced by the provision relating to the prevention of money-laundering, which requires lenders to obtain certain data concerning the client. Moreover, when membership of an

must be true. Any false declarations are subject to the sanctions relating to false declarations by an insured person.

texts brought essential details to the concept and the calculation of this rate. Finally, the European rules for the displaying of the annualised percentage rate in relation to consumer loans were inserted into French regulation by decrees dated 10 June 2002.

of the Consumer Code They apply to mortgage loans. The principle is that, in future, for any loan

equivalent method. However, two exceptions are provided for. They concern:

- Property-loan operations, extended to consumers coming under Articles L. 312-1 et seq of the Consumer Code,

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For property loans to consumers, the APR is an annual rate proportionate to the rate for the term of the loan and instalment arrears. The rate for the term of the loan is calculated actuarially from a unitary period corresponding to the periodicity of the payments made by the borrower, in accordance with the compound-interest method. In all cases, to determine the APR, charges, commissions or remunerations of any kind, direct or indirect, corresponding to actual disbursements (charges for

securities to which the loans are subject, together with the notary’s honoraria, are not included in

conclusion of the contract.

Intermediaries are not subject to any particular obligations. However, they must abide by the rules concerning advertising, when they present the loan conditions in their own advertising documents

company on whose behalf they are intervening.


was set up within the framework of the law dated 31 December 1989, relating to the prevention and settlement of the problems of individuals and families, the provisions of which, amended on a number of occasions, were incorporated into the Consumer Code (Articles. L. 333-4 to L. 333-6

- characterised payment (unpaid equal to three monthly instalments, or, if the loan does not

lender institutes a judicial recovery procedure or declares the cancellation of the term,

- the decisions relating to over-indebtedness procedures: decision on the admissibility of over-

or because the statutory period has come to an end.

as amended on various occasions. Consultation of the FICP is not obligatory; however, it is always

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The lender does not have a legal obligation to advise. Disclosure requirements are largely provided for by law.

certain elements, e.g. the consequences of the life/incapacity to work insurance.

The courts, however, have penalised lenders for having agreed loans which exceeded the indebtedness capacities of borrowers. Likewise, over-indebtedness commissions may, in certain cases, take into account the knowledge, which the lender could have had of the indebtedness of a borrower, or of the fact that the contracts would not have been concluded with the seriousness required by professional practices.

It is a matter of the application of the conventional norms of professional responsibility. Such cases remain exceptional, insofar as the lenders always initiate a risk analysis, and in particular, an analysis of the repayment capacity of the borrowers.

French legislation on unfair clauses provides for the possibility of declaring certain contractual clauses “unfair” in contracts concluded “between professionals and non-professionals or consumers”. Art. L.

rights and obligations of the parties to the contract”.

A list of clauses which can be considered as unfair – if they involve the imbalance referred to in Art. L.

Additionally, decrees may determine types of clauses, which are considered to be unfair.

An «unfair clauses » commission has been set up, which can issue recommendations. Such recommendations are not binding on the courts, but are often taken into consideration.

No decree has been published, nor any recommendation issued by the “unfair clauses” commission relating directly to mortgage loans. However, the “unfair clauses” commission has published recommendations «concerning loans in contracts relating to home ownership, concluded between professionals and consumers or non-professionals” and «concerning insurance policies complementary to a contract relating to consumer loan or a property loan....»

One of the key ideas of the law of 1979 was to organise interdependency between contracts. In this way, provisions of the Consumer Code render the taking of effect of the loan agreement subject to the performance of the main contract, and vice versa.

On this basis, Art. L. 312-12 of the Consumer Code provides that the loan should be accepted by the borrower, on the suspensive condition of the non-conclusion of the main contract within four months. Obviously, the main contract may be concluded in less than four months.

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Reciprocally, Art. L. 312-16 of the Consumer Code provides that the main contract should be concluded

No liability of the lender ensues from this in relation to the main operation. The objective of the law is to prevent a loan from being put in place when the operation cannot be carried out, and to prevent a

operation and paying compensation amounts to the vendor.

terms of the main operation.

Art. L. 312-19 of the Consumer Code however permits a judge to suspend the loan agreement in the event of a dispute concerning the enforcement of a company contract, until the dispute is settled. During the suspension term, no interest is payable.

For that, the following is necessary:

the type of contract enabling these works to be carried out.

- the lender should be summoned before the court or implicated by one of the parties.

premium sales, accompanied by criminal sanctions, in the sphere of loan operations. Nevertheless, there are different levels of prohibition.

“Grouped sales” are authorised when each service included in the package may be acquired individually. It appears that the price of an individually acquired service may be different from the price for the

Moreover, the prohibition does not apply to « inseparable » services. In particular, it does not concern life assurance/work incapacity as security for a loan.

Life – work incapacity insurance is routinely suggested, at least in the event of accession to home ownership. It is very widely admitted by consumers that such insurance is indispensable, and constitutes substantial security for the lenders.

As a general rule, lenders have taken out group insurance policies. The terms of these insurance policies are negotiated between the lenders and the insurance companies, and it is suggested to the borrowers that they accept the insurance. Group insurances enable homogeneous insurance terms

a better rating. To avoid adverse selection (cover of “good” risks with personal accident insurance,

increased contributions, lenders are generally obliged by insurance companies to suggest that life-work incapacity insurance be taken out. When the lender suggests that a borrower takes out a group insurance policy, a sheet listing the risks covered and the operative conditions for the insurance, must be attached to the loan offer. If the cover is subject to the approval of the insurer, and if such approval by the insurer is not given, the borrower may obtain the termination of the loan agreement

insurance, rather than membership of an insurance group. The lender is free, in this case, to accept

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various risks.

– Lenders have often developed a range of insurance products, which correspond with the appropriate needs of borrowers.

4. CONCLUSION OF THE LOAN AGREEMENT

Art. L. 312-7 of the Consumer Code requires the lender to communicate in writing a preliminary offer, forwarded by post, free of charge, to the borrower-applicant, and to any guarantors, if, at least, they are natural persons.

The loan offer must include all the features of the loan, i.e.:

- the identity of the parties and guarantors,

- the nature, purpose, terms of the loan, in particular, the dates and the conditions for making the funds available, and the ;

- the total amount of the loan likely to be granted, its total cost, its APR interest rate, and, if necessary, the indexation conditions ;

- the listing, of the stipulations, insurances and valuable and personal guarantees with a valuation of their cost, which condition the conclusion of the loan.

“Stipulations” mean, in particular, bank arrangement fees, and study and expert fees.

Collateral may consist of either a lien or a conventional mortgage.

Personal securities are commitments of guarantors given by natural persons or specialist bodies: friendly societies, insurance companies or credit institutions specialising in guarantees....

- indication of the necessary conditions for any assignment of the loan to a third party.

The preliminary offer must include an amortization repayment schedule, detailing for each instalment the ratio of capital to interest, unless it is a variable-rate loan offer. It must also separately include the total amount of the search costs which, in the event that the loan contract is not concluded within

It must expressly indicate the provisions of Art. L. 312-10 of the Consumer Code, relating to the term

If the loan is at a variable rate, a sheet setting out the terms and conditions of rate changes must be given to the borrower with the prior offer.

by post, electronic mail is not valid.

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Consumer loan operations must adhere to the standard versions. On the other hand, there is no standard version of a property-loan offer.

The presentation of the offer obliges the lender to maintain the terms that it states, and to be bound by them for a minimum term of 30 days, as from its receipt by the borrower. The offer therefore unilaterally commits whoever made it. For his part, the borrower-applicant may only indicate his acceptance after a « cooling-off » period of 10 days, as from the date of receipt of the offer. After this period of 10 days, the borrower therefore has a minimum period of 20 days in which to accept the offer. If, after this period of 30 days, the lending institution has not obtained a satisfactory answer, it is relieved of any obligation towards the borrower-applicant, who is himself completely free of any legal ties to the lender. In order to safeguard the freedom of decision of the borrower-applicant, Art. L. 312-11 of the Consumer Code stipulates that no remittance of funds may take place between the lender and the borrower from the presentation of the offer until its acceptance.

As stated in 4.3, the borrower has a « cooling-off » period of 10 days as from receipt of the offer. He

person guarantors.

In the event of acceptance, the borrower and, where applicable, the surety return to the bank one of the two copies of the offer, duly signed. The acceptance of the borrower must be given in writing, and despatched by post.

The loan takes effect as from the day of the acceptance of the offer. Payment of the funds may nevertheless be subject to other factors (deed executed and authenticated by a notary, acquisition

Each loan is concluded on the suspensive condition of each of the other loans being granted. This conditions the successful completion of the operation.

There are two conditions however:

operation.

account.

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of Art. L. 312-13 of the Consumer Code, all other loan agreements which might have been concluded after acceptance of the offer. In such event, the borrower must only pay the compensation mentioned in point 4.1, as a maximum.

The loan agreement was traditionally considered as a « real » contract, i.e. a contract which is

rejected in 1998 by the Court of Appeal, which considers that the contract is made immediately upon acceptance of the offering by the borrower. When the loan is covered by a mortgage, an authentic deed is required. A deed is signed and authenticated by a notary, and a note of entry is published in the Mortgage Registry. When the loan is not guaranteed by collateral, the authentic deed is not necessary.

available. In construction operations, the funds are made available in accordance with the pay scales


Generally, French law protects natural-person guarantors, while providing for handwritten reference

course of the loan, in different circumstances according to each case.

Three points must be noted:

1 – Natural-person guarantors must receive and accept a loan offer on the same terms as the borrower.

2 – When a natural-person guarantor binds himself through a simple contract, the contract must include a handwritten reference in accordance with the text provided by Art. L. 313-7 of the Consumer Code, and moreover with the text provided by Art. L. 313-8 of the Consumer Code if he commits himself additionally in the capacity of a joint surety.

3 – Finally, the lender must ensure that the guarantor possesses the means to meet his commitments. In fact, he may not avail himself of the security if, at the time when the guarantor contracted, this commitment was manifestly disproportionate to his assets and income – unless the assets of the guarantor, at the time when it is called upon, enabled his

interventions during the course of the loan, cf. 5.3 below.

The law does not directly stipulate any limit, the commitment of the surety being, in any event, limited to the commitment of the principal debtor. Nevertheless, the handwritten indication appended

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the debtor. The handwritten indication provided for by Art. L. 313-8 of the Consumer Code (cf. 5.1,

not be held liable for the payment of interest and penalties having fallen due between the default of


Contrary to Articles L. 311-1 et seq of the Consumer Code, relating to consumer loan, which provides for a withdrawal option during a period of seven days, the provisions relating to property loans do

which render the acceptance of the loan offer null and void, and the establishement of the loan agreement ineffective.


The borrower may always, on his own initiative, repay the loan in advance, wholly or in part. The loan agreement may, nevertheless, prohibit repayments equal to or less than 10% of the original amount

The loan agreement may contain a clause, according which the lender is entitled to require the compensation for the interest not yet accrued, in the event of early repayment. The maximum

months’ interest on the capital repaid at the average rate of the loan, within a maximum margin of 3% of the outstanding capital, prior to such repayment. In the case of loans at progressive rates, the compensation may be increased in such a way as to ensure that the lender is compensated at the average rate provided for when the loan was granted, over the period that has elapsed since its inception. Nevertheless, no compensation is due when the grounds for the repayment ensue from various situations beyond the control of the borrower: sale of the asset in the event of a change of

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The legal rules determine the maximum that the contract may provide for.

The lender may not abolish the right to early repayment cf. 7.1.

In law, it is possible:

- to transfer the loan, so that the agreement continues with the new owner (the peliminary offer

- to maintain the loan on behalf of the original borrower, by transferring the mortgage.

In the past, the transfer of a loan on behalf of the new owner was carried out with state-assisted loans, when the terms of the provision of the assisted loans and the difference in the rate in relation to

transfers are infrequent. The loan is repaid in most cases, in practice.

The borrower, being able to make early repayment at any time, may do so by means of a new loan, granted by another institution. He must pay the compensation for early repayment, and may

the new loan. He may also renegotiate the terms of his loan with the original lender. In the event of renegotiation, it is considered that there is no disturbance of ownership, and hence no new loan. The sureties are consequently maintained. Loan renegotiations do not give rise to a new preliminary offer, but they require the insertion of an additional clause, which, in accordance with Art. L. 312-14-1 of the Consumer Code, comprises:

- the new repayment schedule of the amortizations,

- the APR and the cost of the loan calculated on the basis of the future instalments and charges

The borrower has a « cooling-off » period of 10 days, as from the receipt of this information.


Usury is when, at the time the loan is granted, the APR exceeds by more than one third the average APR applied by credit institutions in the course of the previous quarter, for operations of the same nature, involving similar risks. These average APRs are recorded periodically and published in notices

In practice, these provisions are actually only applicable to mortgage loans approved by individuals, as the usury rate is determined by reference to the terms applied by the credit institutions, plus

insurance from a person whose state of health or age entails a high premium.

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In civil law, excessive collections are, ipso jure, charged on normal accrued interest and, in addition, on the capital. From a criminal-law viewpoint, the sanction for the offence of usury is a sentence of

Article 1154 of the Code Civil regulates the capitalisation of interest. Pursuant to this text, it is possible to stipulate that interest accrued should bear interest, provided that it is due for a whole year. This article prohibits the capitalisation of interest during the current year, thereby preventing the latter from yielding interest in its turn. Accrued interest may only be capitalised after a term of one year. This means that the interest accrued in the 3rd quarter may not be capitalised at the end of the current calendar year, but only on expiry of the 3rd quarter of the following year.

9. LEGAL CONSEQUENCES IN THE EVENT OF A BREACH OF THE LOAN AGREEMENT BY THE BORROWER

What happens if the borrower does not meet the payment terms?

In the event of default by the borrower, the lender has a choice of two options (Consumer Code L.

- The lender does not demand immediate payment of the capital still outstanding. Default interest is charged to the borrower, while the interest rate on the loan is increased. This increase may

most frequently applied.

- The lender declares that the capital is due for payment. It may then require immediate repayment of the capital still outstanding, as well as payment of the accrued interest. Until the

bear default interest at a rate equal to that on the loan. Moreover, pursuant to a contractual

to Art. R. 312-3 of the Consumer Code. Even if the bank chooses the second of the alternatives

agreement.

the mortgagee may either declare the event of default and immediately pursue his reimbursement by

event of the destruction of a mortgaged property, the mortgage will be maintained on what remains of the security, and will be transferred to the insurance indemnity or the reconstructed building.

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Amendment of the contractual terms may ensue from a renegotiation of the loan. As indicated in 7.7, loan renegotiations do not give rise to a new prior offering, but they do necessitate the insertion of a rider which, in pursuance of Art. L. 312-14-1 of the Consumer Code, comprises:

- the new amortization-repayment schedule,

- the APR and cost of the loan, calculated on the basis of the instalments and future charges

The borrower has a “cooling-off” period of 10 days from receipt of this information.

In practice, this renegotiation occurs on the initiative of the borrower.

Moreover, the stipulation of variable interest rates is permitted and quite common. Various formulas permit a double indexation (the changes in the charges being determined in terms of a different index

terms, in the sense that the terms of the variation must be stated in the offer and in the contract, so that changes in the rate ensue from the application of the contractual provisions. No clause may stipulate a unilateral adjustment of the interest rate by the lender, at its own discretion.


The law dated 31 December-1989, known as Neiertz law, as revised in 1995 and 1998 and incorporated in the Consumer Code, established a mechanism for preventing and dealing with the over-indebtedness of individuals.

This mechanism concerns debtors in good faith, who are manifestly unable to meet all their non-occupational debts.

The mechanism retains the oldest provisions, based on the concept of « days of grace » :

- Article L. 313-12 of the Consumer Code gives the judge sitting in chambers the option, after examination of the overall situation of the borrower, particularly in cases of dismissal

of up to 2 years. He may, moreover, decide that, during the term of such suspension, deferred instalments will bear no interest points. The judge sitting in chambers makes his assessment on a case by case basis, in terms of the overall situation of the borrower, and determines the terms of payment of the deferred sums.

- Article 1152, subparagraph. 2 C.C., relating to the loan contracts, permits the judge to moderate the criminal clauses included in a contract, when they are manifestly excessive. Nevertheless, there is little jurisprudence in the matter, in view of the existing limitations under the law.

The procedure is open to debtors in good faith who are manifestly incapable of meeting their non-occupational debts. They may submit the matter to an administrative commission, the commission for over-indebtedness, the secretariat of which is provided by the branches of the Banque de France

excessive indebtedness.

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1. Agreed plan - The commission for over-indebtedness referred to by the debtor, investigates

plan based on an agreed plan for settlement of the liabilities, which might be accepted by the debtor and his main lenders.

2. Re-arrangement measures - In the event of failure of the negotiations, the commission, at the request of the debtor, draws up a re-arrangement plan. It may recommend various measures,

are of two kinds:

mechanism of the agreements, such as deferment or scaling of the payments, interest-rate

Or the debtor is insolvent (case of absence of resources or sizeable assets enabling all or

term of three years. At the end of this term, the commission recommends either rescheduling measures, or else, if the debtor remains insolvent, deletion of the debts.

applicable if the enforcement judge invests executory power in them, after having checked the legal regularity. Moreover, the following factors should be noted:

- Various obligations may also be imposed on the debtor, to prevent him from exacerbating his indebtedness.

- The measures taken in the context of the over-indebtedness form the subject of a notice in

- The French government shortly envisages amending this mechanism, and the adoption of a “civil bankruptcy” procedure.


There is no mandatory limitation applicable to all property-loan operations. Certain loans of a social nature may be subject to constraints in terms of a minimum personal contribution. These loans are provided by institutions, which have signed an agreement with the State. Loans, which can be acquired by property-loan companies, are also subject to particular rules. These rules do not concern

There are no legal restrictions based on the capacity for repayment. Nevertheless, investigation of the capacity of the consumer to meet the charges for the loan is routine in the context of the risk

As a rule, the lender does not have an obligation to provide particular information to the borrower after the conclusion of the contract. However, lenders have a particular guarantee-disclosure obligation in

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No.

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HUNGARY

1. SCOPE

- Act CLV of 1997 on consumers protection

- Act XXX of 1997 on Mortgage Loan Companies and on Mortgage Bonds

- Act CXII of 1996 on Credit Institutions and Financial Enterprises

- Act IV of 1959 on the Civil Code of the Republic of Hungary

The consumer protection measures concern not only the private persons in general. Some sections

No


In terms of advertising, credit institutions are only permitted to invite juveniles to deposit money,

national daily newspapers.

The advertisement published by the credit institution must clearly state the annual rate of interest or the yield of the deposit or the debt securities issued by the credit institution.

advertisements.

through commercial means, irrespective of whether the advertising is carried out via the press or by

which appear in articles or programs, the primary purpose of which is not the advertisement of the article or where the section of the program has been created upon initiation or under sponsorship of

Advertisements can be published only by credit institutions, which are registered in Hungary.

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Credit institutions are obliged to disclose an APRC

The method of calculation applied, if the credit institution delivers the loan in one instalment is:

H: the sum of the loan, reduced by the costs of credit institution by granting the credit,

Ak: the sum of k- repayment installment,

m: number of repayment installments,

tk: the date of the k- repayment installment in year,

i: 1 percent of APRC.

The method of calculation applied, if the credit institution delivers the loan in several instalments is:

Ak: the sum of k- repayment installment, reduced by the costs of credit institution by granting the credit,

A’k’: the sum of k- repayment installment,

m: number of repayment installments,

m’: number of repayment installments,

tk: the date of the k- repayment installment in year,

tk’: the date of the k- repayment installment in year,

i: 1% of APRC.

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There is a negative database. It is not forbidden for lender to grant a loan to a borrower who appears in the database.

amendments to these conditions.

method of computation of interests

The “responsible lending” principle is not to be found in the Hungarian legal system.

A general contract condition, or the term of a contract between an economic organization and a consumer, shall be regarded unfair if the clause or term, in violation of the obligation to act in good

detriment of one of the parties.

When establishing the unfair nature of a contract condition, it is necessary to examine all of the circumstances leading to the conclusion of the contract, as well as the nature of the stipulated service and the relationship of the condition in question with other contract

regarded to be unfair in respect of contracts concluded with consumers or that shall be regarded as unfair until proven otherwise. The provisions on unfair contract conditions shall

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not be applied to a contract clause stipulating the service and the consideration for such, if the phrasing of such clause is clear and understandable for both parties. The contract

legal regulations, shall not be deemed unfair.

Hungarian law does not contain this type of regulation.


This is not regulated in Hungarian law. In general: see 2.4

The mortgage credit institution lays down the standard agreement, which has to be recorded in a deed by a notary public. This is required by the Act XXX of 1997 on Mortgage Loan Companies and on Mortgage Bonds.

A person who offers to conclude a contract shall be bound by his offer, unless he excluded his restrictions at the time he made the offer. The creditor may specify the period of validity. In the absence thereof, an offer made personally or by telephone shall cease to be binding unless the other party accepts the offer immediately. An offer made to an absent person shall cease to be binding upon the expiration of the period of time within which the person who made the offer can expect (in light of the nature

response under normal conditions. The period in which an offer is valid can be otherwise regulated by legal regulation. By disclosing the necessary details and sending the necessary documents, the borrower may request the creditor to make an offer. The creditor shall present his offer within thirty days of receipt of the request. If the request for an offer does not contain the necessary details or

days of receipt of the request. In this case, the deadline for presenting the offer shall commence with the provision of the missing details and/or documents. The deadlines may be determined differently by legal regulation or, if allowed by legal regulation, the mutual consent of the parties.

A contract comes into existence for the persons who are present at the moment the contract is concluded, while, for those who are not present, it comes into existence when the creditor receives the statement of acceptance. An acceptance with contents that deviate from the offer shall be deemed a new offer. If a contract is concluded by persons who are not present, the place where the contract is concluded shall be the creditor’s premises.

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A contract statement, if made orally or by verbal message, shall become operative when it becomes known by the other party. A written statement or one sent by telegraph must be delivered to and received by the other party in order to be valid. An as yet inoperative statement can be withdrawn. The statement of withdrawal must reach the other party or be made known to him no later than the arrival of the withdrawn statement. If both parties are economic organisations, the party assuming

contract; however, that party shall reimburse the expenses of the other party. If the statement of a borrower made in due time is belatedly received by the creditor, the creditor shall immediately notify the other party that the contract has not been concluded. Failure to do so shall validate the contract.

contract shall not be concluded until this has been given. However, the parties shall be bound by their statements. Either party shall be relieved from an obligation if the third party fails to give its consent or the authority fails to grant its approval before the applicable deadline as communicated by one party to the other. Once consent and/or approval has been received, the contract shall become effective as of the date on which it is signed, unless otherwise prescribed in legal regulation. In the absence of consent and/or approval, the legal consequences of invalidity shall apply to the contract.

There is no formal obligation. Debtors shall not be obliged to accept loans. In such cases, however, a debtor shall indemnify the creditor for damages sustained from the conclusion of the contract. The

be obliged to pay a commission for the period during which the creditor, either by virtue of a credit contract or without one, keeps the loan amount available in the debtor’s favor.

There is no formal obligation for the acceptance. It can be implicit conduct.

This is described in the business regulation + see 4.3

At the moment of signing, or when the contact is put down in a deed by a notary public.

See 4.4

transactions charged to the line of credit. Bank credit contracts shall only be valid if concluded in writing.

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Yes.


Yes. The principles are the same as in point 1.1.

There is no limit to the surety.

By the Act IV of 1959 on the Civil Code

A guarantor is entitled to refuse involvement as long as the claim can be recovered from the debtor and/or from other guarantors, who assumed the surety before him and without regard to him. This


If the borrower cancels the contract he has to pay a cancellation fee.

The borrower can exercise the right of withdrawal before the loan transfer.

The requirements are the same as in the conclusion of the mortgage credit contract.

No.

There are no special requirements.

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Mortgage loan companies may stipulate in the mortgage loan contract that the mortgage loan may not be repaid prior to its expiration.

It depends on the credit institutions themselves. They regulate this question in the contract.

It depends on the credit institutions themselves. They regulate this question in the contract.

The loan can be transferred to the other property, but it depends on the credit institution if it allows this possibility to the borrower.

The borrower is allowed to remortgage. It can be with other lender also. The conditions are regulated in the contract.


If a contracting party has stipulated an unreasonably disproportionate advantage at the conclusion of the contract by exploiting the other party’s situation, the contract shall be null and void (Civil Code:

The general provisions of Civil Code regulate also the contracts on mortgage loan.

The contract shall be null and void.


Withdrawal, assertion of lender’s claim or the lender may grant a respite for payment.

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The lender may resort to enforcement.

No. Supplements are not possible in the event of default.

In the event that the condition or loan security value of the mortgaged property permanently deteriorates, but such deterioration is not due to the actions of the owner, the mortgage loan company may enforce its right to withdraw the mortgage loan with immediate effect. This withdrawal is however limited to the amount for which the decreased value of the mortgaged property no longer provides the security as per the contract, if the debtor fails to restore the condition within the time limit set by the mortgage loan company or fails to provide further security.


In general it is not possible but the contract can allow it for in case of changes of the interest rate.



eighty per cent of the total loan portfolio. Mortgage loan companies shall stipulate a prohibition on alienation and encumbrance in order to secure their mortgage in respect of the real estate serving as a security. The value of the principle claims portfolio arising from mortgage loans may not exceed seventy per cent of the total value of the real estate serving as a security on which the loan was

regulations for determining loan security value which shall be approved by the State Financial and

There are no restrictions by law relating to the consumer’s repayment capacity The credit institutions apply their own regulations.

See point 3.2

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See point 3.2

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IRELAND

1. SCOPE

Regulator in 2006 which is currently in the course of being implemented.

In addition the Family Home Protection Act, 1976, requires that the informed consent of the spouse be obtained before a loan secured on the family home is granted.

profession” however a number of the provisions contained therein have more general applicability, including the provision whereby an institution must notify the Consumer Director of any charges which it proposes to apply or any increase in those charges.

and other unincorporated bodies such as clubs, charities and trusts, non consisting entirely

(provided that such body shall not be a member of group of companies having a combined

made for the purpose of enabling the borrower to provide or improve the house or to purchase the

the borrower or his dependents.

Therefore, the security is a pre-requisite and a range of purposes or use of the secured properties are allowed.

CPC does not, in the main, specify, in which case, the CCA 95 interpretation would be followed.

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CCA 95 requires that:

- An advertisement which mentions a rate of interest or makes a claim in relation to the cost of credit must state clearly the APR offered and no other rate shall be included. The manner in

on the availability of credit must be stated.

- Where an advertisement purports to compare the level of repayments or cost under one or

- Advertisements shall not describe credit as being without interest or any other charge unless that is absolutely the case and there are no restrictions thereto.

- The Consumer Director can issue directions as to the form or content of advertisements for housing loans and the following direction, issued in 1997 is still in force. In relation to printed advertisements for residential mortgage credit in newspapers, magazines or other direct printed advertisements and on the internet, the following must be included:

provided and an indication of whether other criteria apply;

cost per month of a 1% rise in the rate of interest of such a mortgage;

keep up your repayments you may lose your home”.

residential mortgage credit that “Lending terms and conditions will apply”.

CPC sets out high level principles in respect of advertising as well as setting out some additional

Where an ad includes APR, it must display the total cost of credit

advertisement, indicate the difference between the total cost of credit of the consolidated mortgage and the total cost of credit of the individual debs that are the subject of the consolidation.

An ad for a debt consolidation mortgage must carry the following warnig:

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Warning: This new loan may take longer to pay off than your previous loans. This means you pay more than if you paid over a shorter term.

An ad for a variable rate residential mortgage must contain the following warning:

Warning: The cost of your monthly repayments may increase – if you do not keep up your repayments you may lose your home.

An ad for an interest only mortgage must contain the following warning:

- Warning: The entire amount that you have borrowed will still be outstanding at the end of the interest only period.

must take the following form: [name of institution & trading name if applicable] is licensed by the Financial Regulator.

A credit institution operating in Ireland under the provisions of the Second Banking Co-Ordination Directive, must also refer to its regulatory status in any advertisement in Ireland

Irish mortgage lenders are applying the full terms of the Code of Conduct for Home Loans and are disclosing the information referred to therein.

In addition, both CCA 95 and CPC have requirements in respect of pre-contractual information to be provided to consumers.

CCA 95 requires that the following pre-contractual information also be provided to consumers:

shall be included in or attached to any marketing information, application form or approval documentation relating to the loan.

- Any marketing information, application form or approval documentation relating to a mortgage must contain the following warning:

“WARNING YOUR HOME IS AT RISK IF YOU DO NOT KEEP UP PAYMENTS ON A MORTGAGE OR ANY OTHER LOAN SECURED ON IT.”.

And, where the interest rate for a loan is variable:

“THE PAYMENT RATES ON THIS HOUSING LOAN MAY BE ADJUSTED BY THE LENDER FROM TIME TO TIME.”.

- Where a fee is payable by an applicant for a housing loan in respect of any of the following matters:

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the mortgage agent shall ensure that a statement of reasonable prominence that such a fee is payable and specifying the amount of the fee or how such amount is determined and the circumstances in which it may be refunded, if such is the case shall be included or attached to any marketing information, application form or approval documentation relating to a mortgage.

- Any marketing information, application form or approval documentation relating to an endowment loan must include the following warning:

WARNING THERE IS NO GUARANTEE THAT THE PROCEEDS OF THE INSURANCE POLICY WILL BE SUFFICIENT TO REPAY THE LOAN IN FULL WHEN IT BECOMES DUE FOR REPAYMENT.”.

except where the insurer guarantees that the proceeds of the policy at the initial premium will be

Where there is a possibility that the borrower will be required or advised to increase the amount of the premium payments relating to the loan, the document sent to the applicant indicating approval shall contain a statement of this possibility in a prominent position.

Where there is a possibility that the early surrender of the policy may result in a return to the consumer which would be less than he has paid in premia and other charges information documents must contain a statement of this possibility.

- Where it is the policy of a mortgage lender to charge interest in respect of arrears on any housing loans the mortgage lender shall ensure that information documents and any communication in relation to arrears payments due on such a loan shall state the amount of the increase in interest and other charges which a borrower may become liable to pay in respect of such arrears.

Furthermore, any communication issued by or on behalf of a mortgage lender to a borrower which refers to the possibility of possession proceedings being taken under the mortgage, shall contain an estimate of the cost to the borrower of such proceedings.

and is, therefore, received by the borrower before he/she signs the agreement.

“Important Information as at dd mm yy

CPC requires the following in respect of pre-contractual information:

Provision of the Terms of Business at the outset of the business relationship.

For mortgages with the purpose of consolidating other credit facilities – a written indicative

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comparison of the total cost of continuing with the existing facilities and the total cost of the consolidated facility on offer.

> A regulated entity must advise the consumer of the consequences of lifetime mortgages including details of the total costs involved, including all interest charges and the effect on the existing mortgage, if any.

> A regulated entity must ensure that consumers are made aware of the importance of seeking independent legal advice.

> A regulated entity must include the following warning on any information document, application form or any other document given to the consumer in connection with a lifetime mortgage.

Warning: Purchasing this product may negatively impact on your ability to fund future needs.»


complete.

CCA 95 along with associated regulations and directions require that:

- Advertisements for mortgages must include APR; the only exception to this is radio advertising

- The loan agreement must include the APR

APR is calculated in accordance with Directives 87/102/EEC, 90/88/EEC & 98/7/EC which is given domestic effect under CCA 95 and by statutory instrument 294 of 2000.

The following elements are included in APR:

- interest

- release fee/sealing fee re. vacate/release

- any other charges which the borrower is obliged to pay the lender as a condition of the transaction

- charges for life insurance or property insurance

- charges for non-compliance by the borrower

- government stamp duties

- charges which would arise in any event in the absence of the existence of mortgage funding, such as, fees payable to the agent of the borrower for carrying out legal and other procedures associated with the acquisition of the property.

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Assumptions:

- In the case of advertising, the calculation is based on a typical example.

CCA 95 applies regardless of where a mortgage originates and requirements are generally imposed on ‘mortgage agents’ which includes both lenders and intermediaries. In practice, however, most of the information requirements will usually be met by the lender even when its loan is originated via an intermediary.

CCA 95 requires the authorisation of at mortgage intermediaries along with transparency in terms of their status and agencies.

A differentiation is made between ‘tied intermediaries’ and other mortgage intermediaries. Tied intermediaries have a relationship with a single lender (this must be clearly and explicitly evidenced at

compliance.


institutions are members of ICB and lenders are not required to check borrowers details.

It is our understanding that in order to access non-domestic registers, Irish institutions would need to be parties to such databases and we do not believe this to be commonplace. Equally access to ICB information is only permitted by Member Financial Institutions that register the required transactional data.

Currently there is no legal duty to provide advice to a candidate borrower.

The suitability requirements are set out as follows:

A regulated entity must ensure that, having regard to the facts disclosed by the consumer and other relevant facts about that consumer of which the regulated entity is aware:

in the selection represent the most suitable from the range available to the regulated entity; or

suitable product for that consumer.

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This requirement does not apply where:

advice;

entity has alerted the consumer to any restrictions on the account and/or the availability of a lower cost alternative.

Before providing a product or service to a consumer, a regulated entity must prepare a written statement setting out:

that consumer;

to be suitable to that consumer; or

that consumer.

The regulated entity must give a copy of this written statement to the consumer and retain a copy.

This requirement does not apply where:

advice;

- The regulations restrict institutions from entering into contracts which are unfair to the consumer. An unfair term in a contract concluded with a consumer by a seller or supplier shall not be binding on

rights and obligations under the contract to the detriment of the consumer.

There is currently no joint and several liability for the provider of mortgages although there are provisions in relation to joint and several liability in the context of consumer credit.

auctioneering services or other services relating to land which the borrower may require whether or

body is prohibited under CCA 95. Loans made to individuals acquiring such services from the lender, its agent, etc, may not be on a more favourable basis.

In addition, CPC introduces a new provision whereby a lender must not make the sale of a product or service contingent on the consumer purchasing another product or service from the lender.

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The mortgage lender is obliged to arrange for mortgage protection insurance to be in place at the time of the issuance of the mortgages unless:

- the borrower already has an equivalent policy in place

- the property will not be the principle residence of the borrower or his dependents

- the borrower falls into a ‘high risk’/’high cost’ insurance category

- the borrower is over 50 years of age.

The lender may require that further types of insurance be put in place with respect to a mortgaged property but it may not require that said insurance is acquired from it or from an insurer for which it is an agent.


The offer must be in writing and the credit agreement must contain a schedule of information as set out under 2.3 above.

The only standard clauses that are required in the offer are those set out in clause 2.3 above and these requirements are set out in the Consumer Credit Act 1995. Failure to comply with the

Consumer Credit Act 1995.

The ‘cooling off period’ under CCA 95 does not apply in respect of mortgage loans (i.e. loans secured

The borrower signs the letter of offer and returns it to the lender.

There is no legal deadline for responding to the offer. Typically most offer letters contain a requirement to return the acceptance of the offer within 21 days.

The credit agreement comes into effect on draw down of the funds.

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Each credit agreement is treated as a separate contract and while it is rare, failure to pay on one loan will not lead to cancellation of the other credits if the other credits continue to be repaid by the borrower.

The agreement for credit is accompanied by a legal mortgage whereby the borrowers interest in the real property of the borrower is transferred or conveyed to the lender subject to the right of the borrower to redeem the loan and to have the interest of the lender re-conveyed or re-transferred.

Yes but these conditions are only unilateral in that they are set by the lender and the borrower can either agree them or if he cannot agree them, he cannot proceed with the loan. These conditions are usually conditions required for the purposes of satisfying underwriting criteria.


Guarantors do not come under the same consumer protection law as the borrower. However a credit agreement cannot be enforced against a guarantor in respect of credit agreements other than housing loans under the provisions of the Consumer Credit Act 1995 where the requirements of the Act regarding the contents of the credit agreement are not complied with.

CPC introduces some provisions of guarantor protection. Where a loan is being advanced subject to a guarantee, the guarantee must outline the obligations of the guarantor and must contain the following warning:

Warning: As a guarantor of this loan, you will have to pay off the loan, the interest and all associated charges if the borrower does not. Before you sign this guarantee you should get independent legal advice.

If the terms of the loan agreement change, the lender must notify the guarantor in writing.

then entitled to require the guarantor to pay under the guarantee.

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If “conclusion” means after the funds have been drawn down, The borrower is not legally or contractually entitled to cancel the mortgage credit contract after its conclusion and the funds must be repaid in full by the customer together with any interest. If “conclusion” means after the signed letter of offer or acceptance has been received by the lender, the practice is that the lender simply cancels the loan application.

There is no legal deadline for exercising this right of withdrawal. However offer letters generally contain a time limit within which draw down must take place (e.g. 40 days from date of acceptance

No

No

No


Yes – CCA 95 stipulates that a borrower may, at any time before the time agreed, repay to the mortgage lender the whole or any part of a housing loan.

The lender may not apply a redemption fee in the case of a variable rate loan, i.e. a loan where the interest rate will not vary for a period of at least 12 months. A redemption fee may be applied in the

case of certain ‘capped’ interest rate loans.

Where a redemption fee may be applied, a statement to that effect along with details of the method of its calculation must be included in all information documents relating to the loan (including marketing

redemption fee is not standardised in law and is a matter for each individual lender to determine in line with the contract.

No

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No

No

It must be repaid.

The borrowers ability to remortgage is intrinsically linked to his or her ability to redeem the loan. In that the absolute right to redemption exists, so does the right to remortgage. Such a remortgage

the same costs for the borrower as the initial mortgage, i.e. legal fees, registration costs, etc.


No

Money lenders under licence from the Director of Consumer Affairs would be entitled to charge high interest rates. However if they charged excessive interest rates, a consumer could apply to Court to have the rate declared excessive. However this remedy is not open to loans under a credit agreement relating to credit advanced by a credit institution. From a civil law point of view, an excessive rate of interest could be struck down by the Court as being unconscionable and therefore unenforceable.

an institution not to impose the proposed surcharge or penalty interest. This provision is an extension of the provision which previously applied to any bank charges.


repayments. This may result in the lender putting in place a further agreement with the borrower to service the debt. If these attempts prove unsuccessful the lender may choose to enforce the mortgage. If this is the case the borrower will be issued with a demand for payment of the full amount due and, failing payment, the institutions will instigate court action seeking a possession order in respect of the property.

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The creditor has the right to claim all sums owed under the mortgage agreement including interest due. In the event of the repossession and resale of the property, any excess funds accruing from the resale after any amounts legally due to the lender are deducted are returned to the borrower.

continue to pursue the borrower in respect of these amounts.

Yes


borrower. Most interest rates are variable, and are subject to unilateral variations over the course of the contract. The automatic right of repayment without redemption fees combined with competitive forces ensure that borrowers do not suffer from the lender’s unilateral right of variation.


No

N/A


No. The regulator does however apply and monitor prudential supervision conditions and LTV’s in excess of 95% are rare. For high LTV loans, lenders may require that an indemnity bond protecting

This may be paid for by the lender or the borrower.

Not in terms of legal restrictions however, along with the application of standard underwriting criteria by the institution, the regulator may require from the perspective of prudential supervision, that a lender demonstrate that it is not lending to consumers beyond their repayment capacity. One means of demonstrating this is by stress testing both new and existing loans against hypothetical interest rate increases.

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CCA 95 requires that:

- A mortgage lender shall in respect of a housing loan, issue to the borrower:

any copy of such mortgage deed issued to his legal representative, and

not more than one year after the making of the loan and at intervals of not more than one year thereafter until the loan is fully repaid, such statement being issued as soon as

CPC requires that:

Where the mortgage account is in arrears, the regulated entity must inform the consumer in writing of the status of the account as soon as possible after it becomes aware of the arrears. This information must include:

calculate the arrears interest amount.

Statutory Instrument to give it practical effect and this has not been put in place.

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ITALY

1. SCOPE

The consumer protection measures of the Banking Law (Article 121 et seqq of Legislative Decree 385/19993, only concern a “natural person acting for purposes outside his business, trade or

No.


Yes.

requesting a loan all the information concerning the processing of the data involved in the granting of the loan.


is no such obligation under Italian law and that under the Code of Conduct they could, if they wished, inform customers only of the effective interest rate.

As to general information, this is supplied by Italian banks as part of their detailed information sheets under the transparency law. The sheets also provide additional information on the economic content of the contract.

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The obligation to disclose the APRC, under Italian law, applies only to consumer credit, i.e. “the granting of credit in the course of a trade, business or profession in the form of deferred payment,

These obligations are placed on all Italian intermediaries.

3. PRE-CONTRACTUAL AND CONTRACUTAL OBLIGATION IMPOSED ON THE LENDER

There are other, private and voluntary databases on consumer credit, such as CRIF and Experian Ltd. With the depenalisation of the crime of writing bad or unauthorized cheques, a computerized database on irregular bank and postal cheques and payment cards is operated by SIA. Consultation of the databases is not compulsory, and cross-border access is not provided for.

Yes, there is an information obligation.

Italian law recognizes no responsibility of the lender for “ill-considered lending”.

Italian law considers unfair terms in Article 1469 ff. of the Civil Code. Article 1469-bis lays down that “in a contract between a consumer and a professional, clauses shall be considered unfair if, notwithstanding good faith, they produce a substantial imbalance to the consumer’s disadvantage in the rights and obligations deriving from the contract”.

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No, as a rule there is no link between the goods/services contract and the credit contract. The

relationship between the creditor and the supplier. Where the consumer has acted against the supplier but has not obtained satisfaction, he may have the right to take action against the creditor as well

As noted under 3.5, the special rules on consumer credit also apply to mortgage credit.

The practice is for the mortgage lender to require the borrower to take out insurance, but there is no legal obligation.


At present there is no such obligation, but the introduction of new transparency rules as of 1 October 2003 will make it compulsory to give the borrower a full copy of the contract so that he can make “a considered assessment of its contents” (Resolution of the Interministerial Committee for Credit and

There is no standard agreement. Contracts are negotiated by banks with customers.

Those provided for by the contract.

Mortgage acts in Italy are formalized before a notary.

There is no provision for a mortgage offer.

The contract comes into effect when the amount agreed is made available to the borrower.

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There is no provision in Italy for cross-default.

Mortgage contracts are real contracts, formalised by the delivery of a sum of money. To constitute a mortgage, the contract must be a public act. The mortgage is instituted with its entry in the public mortgage register.

No.


No.

No.

In a surety agreement, Article 1944 of the Civil Code provides that the parties may agree that the surety shall not be bound to pay before remedies against the primary debtor are exhausted. In this case, if the surety is sued by the creditor and intends to avail himself of the exhaustion of remedies, he must indicate the primary debtor’s assets upon which execution is to be levied.


The deadline is established in the mortgage contract itself.

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7. RIGHT OF EARLY REPAYMENT.

Under Article 40 of the 1993 Banking Law, debtors may repay all or part of their debt early by paying the bank a contractually determined all-inclusive early repayment fee.

As noted under 7.1, the lender is entitled to a fee for early repayment. For consumer credit, this fee cannot exceed 1% of the outstanding capital. For mortgages, the amount of the fee for early repayment and the method of its calculation are established in the loan contract. The bank’s periodic statements to the borrower must specify the current “cost” of early repayment.

Yes.

No. See 7.2

No.

When the property for which the loan has been requested is transferred, either an agreement is made with the bank to transfer the mortgage as well, or else the loan is extinguished.

from bank to bank.

8. USURY.

Article 644 of the Penal Code punishes “any person who acts so as to be given or promised, in whatever form, for himself or for others, in return for the loan of money or other valuables, interest

when, considering the concrete mode of the loan and the average rate on comparable loans, they

need.

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Law 108 of 7 March 1996 provides that the rate above which the interest charged on a loan is always usurious is the average rate for each type of loan surveyed taken from the most recent observation

It is relevant to mortgage loans, as to all types of loan.

In Civil Law, Article 1815.2, provides that “if usurious interest is stipulated, the clause is void and no interest is due.” As for the supervisory regulations, in the case of usurious interest, the Bank of Italy

No.

9. LEGAL CONSEQUENCES IN THE EVENT OF INFRINGEMENT OF THE LOAN CONTRACT.

Action for credit recovery is initiated.

In the event of default on a home mortgage loan, the mortgaged property may be sold at auction. In all other cases, the procedures envisaged by the Code of Civil Procedure for forced collection of the credit claim are initiated.

Yes, if so provided for in the loan contract.

10. IS THE UNILATERAL SETTING OF AND /OR CHANGING OF CONTRACTUAL CONDITIONS POSSIBLE DURING THE LOAN?

Yes.

11. REGULATIONS RELATING TO OVERINDEBTEDNESS.

would govern proposals for a settlement by an overindebted person, providing for the payment to all creditors of a percentage of the claims of each.

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12. OTHER PROBLEMS RELATING TO CONSUMER PROTECTION.

Granting a loan forms part of business risk. It is up to the lender to make an accurate assessment of the borrower’s creditworthiness and ability to repay.

No.

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THE NETHERLANDS

1. SCOPE

A Financial Services Act has been in force since 2006. This act is also applicable to private mortgage loans.

Since 1st

has been in effect. The code of conduct applies to mortgage credit on houses and apartments for private persons and meant for their own use and offered as a more or less standard product by the

a dentist, a chartered accountant etc., the regulation does not apply. Since 1st January 2003 the European Code for home loans has been integrated in the code of conduct.

A special commission has been set up to ensure proper application of the code of conduct. Consumers may consult the commission if they have a dispute with their mortgage lender.

Since 1st

The above mentioned consumer protection measures only concern loans to consumers.

indicated under 1.1. The consumer protection measures indicated under 1.1 are not limited by the purpose of the loan.


According to the code of conduct on mortgage lending, it is compulsory to provide the consumer with

Dutch professional lenders disclose all the information listed under the Code General Information List and the European Standard Used Information Sheet. On top of that, it is compulsory to provide the

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There is no legal obligation to disclose an Annual Percentage Rate of Charge to mortgage borrowers. However, according to the code of conduct the professional lender has to disclose the APRC.

The effective rate of interest has to be stated just as the nominal rate of interest.

The formula for the effective rate of interest is as follows:

- the effective rate for interest per term of payment is calculated by way of the following equation:

n

-------- + --------

over a period of 30 years at most

given case after 30 years

After this, the effective rate of interest on a yearly basis is calculated as follows:

t

A professional lender must conclude a written contract with an intermediary who works for him. In

that contract, it must be stated that the intermediary has to comply with the code of conduct.


The professional lender has access to a central database. There is a positive and negative registration

considers granting a credit to a consumer it is compulsory to consult the central database.

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The Financial Services Act implies that the lender gives advice unless he mentions that he does not give advice.

The principal of “responsible lending” is not yet incorporated in the legal system except in the case of unsecured credit to consumers.

and a professional that is unreasonable for the consumer”. There is no typical unreasonable onerous stipulation mentioned in the law for mortgage credit.

The borrower has the right to suspend further payments if the supplier of a movable good or services, bought with the credit, fails to comply with his obligations, if:

reasonable time for performance.

There is no regulation about the linking of services to mortgage credit.


The borrower must receive a copy of all conditions of the future agreement in a written form (code of

The offer must comply with the provisions in the code of conduct. In the event of non-compliance,

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Handing over an offer to a candidate borrower is binding for the lender except if the lender has reserved rights.

The acceptance of an offer generally takes place if the consumer signs the offer in writing.

1. Generally the offer must be accepted within a certain period.

2. The mortgage has to be taken out within a certain period of time after accepting the offer.

A credit contract comes into effect by signing a proper set of documents by both parties. The creation

notarial deed, as well as the registration at the register of real property. It is possible to combine the two contracts in one notarial deed.

If a borrower needs several credit facilities from different lenders, it is common practice that the coming into effect of one of the agreements is made conditional on the coming into effect of the other. This is, however, on a contractual basis. There are no legal links between the separate agreements.

The credit agreement as such is a consensual agreement. However, when executed by way of a notarial deed, with disbursement of funds at the same time, it has elements of a “real” contract. The difference is of minor importance and is more of an academic nature.


There is a special legal protection for sureties entered into a person not acting in the course of his

The principles are:

- the surety must be concluded in writing

- the surety must be bound to a certain amount

- there are restrictions for a surety for future obligations

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The law does not limit the amount of the surety. However a suretyship for future obligations may be

a certain and determinate period. After cancellation, the suretyship continues for obligations, which have already arisen.

The guarantor is not obliged to perform until such time as the principal debtor has failed in the performance of his obligation. The creditor who puts the principal debtor into default must at the same time notify the guarantor. It is not necessary for the creditor to take legal action against the principal debtor before he addresses the guarantor.


After accepting the offer, the borrower has no legal right to cancel. There is no right of cancellation, apart from in the case of doorstep selling. Mortgage credit is only covered by the provisions applicable to doorstep selling in exceptional cases, since the negotiations are usually carried out at the bank.


There is no legal right for early repayment. However, according to the code of conduct, the borrower can always repay early.

In the case of variable interest loans, repayment is usually possible in the short term. Often, overall

bank may make repayment conditional on the restitution of the loss of interest which it incurs over the remaining duration in the case of increased interest rates.

In principle, lenders can claim further penalties, but in practice, the only “penalty” is the restitution of the loss of interests.

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According to the code of conduct, the borrower always has the right of early repayment or termination of the contract/loan.

No

In case of the transfer of the property, the loan must be repaid. However, it is sometimes possible to transfer the loan to a new property.

If a new lender grants a new loan, the mortgage has to be renewed.


the principle of good faith. In the event of uncommonly high interest rates, limits could however be drawn from case law.


If the borrower fails to meet his obligations, the lender is of course allowed to claim the amounts due and payable.

The borrower can claim the outstanding debt, the unpaid interest due, the contractual penalties and costs.

With regard to default interest, there are usually two systems according to what is agreed in the contract. Either an interest supplement of 1% p.a. is calculated on the outstanding loan, or the loan interest plus a supplement of 1% is charged on the instalments in arrears. It is common practice that in such cases, the borrower has to pay default interest over the amounts due, at an average of 1-2%. Moreover, in case of default, the lender normally has the right to declare the entire loan due and payable. In that case the borrower has to pay the default interest on the whole amount outstanding.

Except for costs, it is not unusual for the borrower to also have to pay a penalty if early repayment

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is due to default. There is no uniform practice regarding the amount of such penalty. It can be considerable. However, if this penalty is excessive, the courts have the right to moderate it. The code of conduct streamlines the policies of the different lenders.

The general conditions applicable to mortgage credit agreements in general contain a provision according to which the borrower is obliged to carry out “appropriate maintenance” to the mortgaged building. In the event of payment arrears, or if the borrower has failed to meet any of the obligations under the contract, such as the obligation to maintain the building, the lender can call in the loan. Theoretically, a breach of contract in the way described results in the termination of the loan. In practice, however, the bank hardly ever uses its power to terminate the loan in such cases.


some lenders provide variable interest loans, where interest rates may change on a certain date or even on a daily basis. If, in such a case, a borrower does not agree with the newly set rate, he has the right to redeem the loan in whole. In practice this does not happen very often because of the


There is no legislation on over-indebtedness


There are no legal limits to a maximum loan-to-value.

No

No

No

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AUSTRIA1

1. SCOPE

mortgages.

Yes

No


Before adhesion to the code of conduct, it was banking practice to provide, at the advertising stage, information on the type of loan, the duration and the costs. There was however no legal requirement. Since the introduction of the code of conduct, all information agreed upon in the code of conduct is given; this is more information than practice included before.

institutions should also give representative examples of the calculation of a loan. Moreover there is

which states that advertising measures infringing public morality are forbidden. Austrian jurisdiction


All information listed under the Code and ESIS are given. The code of conduct has been fully implemented. There are no exceptions.

Yes.

1 Last updated in 2003.

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No.


It is usual to consult the “Kreditschutzverband” data base to collect data about the current loans of a potential borrower and to provide them with data. It is not compulsory, except as a general precautionary measure. It is theoretically possible to access databases on a cross-border basis, but

No, but lenders usually provide advice about the construction of a mortgage and the consequences for

payment settlements, the consumer receives advice from the lender concerning the consequences of payment to the purchaser.

No

regard to transactions with consumers.

various options at their disposal to guarantee the timeliness of these payments.

Does the borrower have a legal obligation to possibly take action against the supplier before taking action against the lender?

No

No

No

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At the request of the borrower, in accordance with the consumer measures in the Banking Act, the lender must provide the borrower with a copy of all the conditions of the future credit agreement in a written form. Due to the principle of self-commitment in the “code of conduct on pre-contractual information for loans”, the future-borrower is in any case informed about the most important conditions.

There is no standard agreement, but there are standards for conditions of consumer loan contracts in the banking practice. Also see above to 4.1.

offer is usually limited in time, especially as far as the interest rate, which his offered by the lender, is concerned.

is no temporal restriction, unless one has been negotiated in the contract.

With a mortgage-loan, the signatures of the borrower and the lender have to be notarized by a public

The coming into effect of the agreement depends on the nature of the agreement:

Usually there is a condition like this in “the general terms and conditions” of the lender.

See 4.7. and 4.5.The contract is not directly linked to the property.

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No, only in the contract.


Yes, the guarantor must be provided with the same information as the borrower. The Consumer Protection Act and certain articles of the General Banking Act do not distinguish between borrower or

There are no limits concerning an excess-surety, but there is an indirect limit, which results from the tax regulation: surety contracts are free of charges only as long as do not cover more than 130 % of the value of the loan. Mortgages can only be admitted for the asset pool if the registered mortgage does not exceed 60 % of the fair market value. The guarantor only guarantees for the outstanding amount; guarantee is accessory.

That depends on the contract – both alternatives are legally possible.


Legally the borrower is not entitled to cancel the loan; contractually it is unusual he is entitled to do so.

--

No.

No

No

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Yesthe borrower can only repay at the end of this period. Otherwise, he is obliged to compensate the bank for eventual losses of the bank.

bank.

If agreed upon.

No

Yes

The loan can be transferred or repaid as long as all parties to the contract are in agreement.

Remortgaging means in practice cancelling the loan and remortgaging with another lender. For conditions, under which it is possible, see 7.1. to 7.6.


and that the interest rate must not exceed an average level.

There is a criminal liability, the contract is invalid, and, if a bank is guilty of usury, the supervisory authority may withdraw the concession.

The adjustment of the interest rates must follow objective indexes.

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If several reminders prove ineffective, the mortgage will be subject to early maturity.

mortgage.

As far as agreed upon in the mortgage contract.

If there is a risk that the value of the mortgage will fall below the value of the property, the lender


No


Yes

The regulations for debt settlement for consumers are based on the principle that private people should have the same legal oppotrunities as enterprises to pay off their debts within a manageable

of debt settlement aim to give the honest debtor a chance for a new start.

There are three possibilities:

2. an installment plan


No

No

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He must provide information about every change of the interest rate, as well as information annually on both the outstanding amount and the annual payments and charges.

No, unless the borrower is charged for the commission in addition to the costs mentioned in the credit-contract.

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POLAND

1. SCOPE

This Act implements into Polish legal order provisions of following Directives:

> 85/374/EEC: Council Directive of 25 July 1985 on the approximation of the laws, regulations and administrative provisions of the Member States concerning liability for defective products (amended by the Directive 1999/34/EC of the European Parliament and of the Council of 10

> Council Directive 85/577/EEC of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises

> Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts

> Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts

> Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002

Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC

According to this Act, the right of withdrawal applies to:

land or in an existing or projected building, or for the purpose of renovating or improving a building, or

immovable property, as well.

of 22 December 1986 for the approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit.

The scope of this act are all credit contracts with the exception of such contracts as with the value above 80.000 PLN or equivalent in foreign currencies.

Another words: This Act applies to the mortgage credit only in case if it is not excluded from its scope, i.e. when the value of mortgage credit is lower than 80.000 PLN (or equivalent in foreign

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The Polish Civil Code includes two relevant chapters concerning consumer credit. One of them (Articles

sales, in which the buyer uses the bill of exchange for payment, are also under the scope of these provisions. According to this chapter, the buyer has the right to pay his liability before its maturity and he is entitled to a reduction of the interest rate, but not the credit cost. The rescission of the

the right to claim for adequate compensation for the use of the good in case of repossession.

Article 353 states the principle of freedom of contracts, according to which, only some exceptional

character.

The Civil Code includes also the list of unfair contractual terms in agreements signed with consumers.

According to the Article 385-1. § 1 the Civil Code, the provisions of the contract concluded with the consumer which have not been individually agreed upon shall not be binding if contrary to good

including price or remuneration, if they were formulated in an unequivocal way. Where the provision of a contract pursuant to § 1 is not binding on the consumer, the parties are bound in the remaining scope of the contract. The provisions of the contract on which the consumer has no real impact are considered as not agreed upon individually. In particular it regards provisions resulting from the standard contract form proposed to the consumer by the contracting party. The burden of proof that the provision have been agreed individually lies with the party invoking it.

Cases concerning the illegality of pro-formulated standard contracts are subject to the jurisdiction of the antimonopoly court.

indications in the contract and disclosure requirements of interest and commissions.

Yesof the Act, dated 23 April 1964, titled the Polish Civil Code (Journal of Laws No. 16, item 93, as

It depends from the legal act.

For example: in case of the Act on the protection of certain consumer rights and on the liability for the damage caused by a dangerous product, the provisions refers to the purpose of the loan.

In case of the Act on the consumer credit – the amount of the loan determinates the scope of the act.

Besides there is no especially legal act in Poland which refers only to the mortgage loans.

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Yes – but only in case the loans which are subject to the consumer credit act (i.e. when the value

calculated on the basis of Total Cost of the Credit.

Abovementioned article implements the article 3 of the Directive of 22 December 1986 for the approximation of the laws, regulations and administrative provisions of the Member States concerning

1984 relating to the approximation of the laws, regulations and administrative provisions of the Member States concerning misleading advertising, and to the rules and principles applicable to unfair advertising, any advertisement, or any offer which is displayed at business premises, in which a person offers credit or offers to arrange a credit agreement and in which a rate of interest or any

percentage rate of charge, by means of a representative example if no other means is practicable.”

There are general regulations concerning misleading advertising. The act of 16th April 1993 on

This Act implements into Polish legal order provisions of following Directives:

> Council Directive of 10 September 1984 relating to the approximation of the laws, regulations and administrative provisions of the Member States concerning misleading and comparative

> Council Directive of 6 October 1997 amending the Directive 84/450EEC concerning misleading

Counselling involving unfair competition, false advertising and trade disparagement in Poland:

Pursuant to Article 3 of the Polish Law of 16 April 1993 on Suppressing Unfair Competition, an act of unfair competition is understood as an act inconsistent with law or good customs if it jeopardises or infringes upon the interests of another entrepreneur or customer.

Acts of unfair competition include, in particular, misleading marking of an enterprise, false or fraudulent marking of geographic origin of goods or services, misleading marking of goods or services, violation of trade secrets, persuading entrepreneurs to terminate a contract or to refrain from performance

bribing of a person performing public function, unfair and prohibited advertising, organising of an avalanche sale system and conducting or organising business in a consortium system.

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In case of an act of unfair competition, the entrepreneur whose interest was jeopardised or infringed may request:

Polish culture or protection of national heritage - if an act of unfair competition was committed at the party’s fault.

Foreign natural and corporate persons enjoy rights following from the Law on Suppressing Unfair Competition on the basis of international treaties binding upon the Republic of Poland or on reciprocal terms.

None of the Polish credit institutions has implemented the code of conduct or even started the procedure of adhering to the Code of Conduct on home loans.

From July 2006 the Polish credit institutions have to provide to consumers a pre contractual information about the risks connected with the variable interest rate and the credits denominated in


In case of pre contractual information - there is no such an obligation in Poland.

enumerate in the appendix to the consumer credit act:

In order to calculate the APRC into account should be taken following charges:

- fees, commissions and costs connected with the provided credit, enumerated in article 4.2 p.5 and 7;

- costs paid by the borrower on the basis another legal acts, connected with the securities,

- and the cost enumerated in article 7.1 p.3.

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The same requirements concern the credit intermediaries.


Yes, there are negative central databases or other sources of data on the candidate borrower run by a private company. It is not compulsory for the lender to consult them – it depends on the internal procedures. It is not possible to access databases on a cross-border basis.

No, there is no such a duty on the lender side.

There is no “responsible lending” principle regulated in the Polish legal system.

According to the Act of 23 April 1964 on the Civil Code, Art. 3851 § 1 The provisions of the contract concluded with the consumer which have not been individually agreed upon shall not be binding if

the parties, including price or remuneration, if they were formulated in an unequivocal way.

§ 2. Where the provision of a contract pursuant to § 1 is not binding on the consumer, the parties are bound in the remaining scope of the contract.

§ 3. The provisions of the contract on which the consumer has no real impact are considered as not agreed upon individually. In particular it regards provisions resulting from the standard contract form proposed to the consumer by the contracting party.

§ 4. The burden of proof that the provision have been agreed individually lies with the party invoking it.

According to the Act of 23 April 1964 on the Civil Code, Art. 3853 in the case of doubt, the following provisions shall be deemed unfair contract terms which are, in particular:

or inadequate performances of the obligation,

another party,

before the conclusion of the contract,

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without the customer’s consent,

conclude in the future further contracts of a similar kind,

another contract, not having a direct relation to the contract containing provisions subject to assessment,

the will of the contracting party of the consumer,

the contract,

not or only partial delivered where the customer withdraws from the conclusion of the contract or from its performance,

prior to the contracting party’s performance, where both parties terminate, dissolve or withdraw from the contract,

terminate it,

for indeterminate period of time, without indicating important reasons and without adequate notice,

withdrawing from the conclusion or performance of the contract,

period,

characteristics of the performance, without valid reasons,

or remuneration after the contract was concluded, without giving the consumer the right of withdrawal from the contract,

of the obligations by persons, with the intermediary of which the consumer’s contracting

responsibility conditional to excessively burdensome for the consumer formalities,

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inadequate performance of his contracting party,

or foreign court of conciliation or another body, or imposing the court which by the law is not competent locally.

Consumer Protection.


Yes, the borrower should receive a copy of all conditions of the credit agreement in the form of written offer (standardized contracts, general conditions of contract, service regulations, the chart of

on changes on Civil Code and changes of some other Acts dated 7th

increase. A consumer who will decide to conclude a credit contract (for example the mortgage loan

i.e. penalty interest, which it will be obliged to pay in case it fails to pay credit rate on time, as well as of the conditions of changing this interest. The Consumer should also be informed of other costs imposed on him in relation to the failure of the contractual obligations, including costs of warning or call for payment, court and enforcement proceeding costs.

credit can not exceed 5% of the amount of consumer credit. Limit does not encumber costs which are documented or result from legal provisions concerning establishing, changes or expiration of

The article 15 of Consumer Credit Act deals with penalties in case of violation of the provisions of the present Act. Penalties depend on which rules were not met. If the credit contract was not delivered to the consumer or if advertisements relating to consumer credit do not contain full information on annual interest rate – the borrower can repay the credit without the interests or any other costs.

whose texts contain considerable infringement of requirements.

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NOTE: I treat the term “credit offer” as a binding agreement (on the basis of the of Polish Civil Code

Yes

There is a general regulation concerning the credit agreement – The Banking Law Act of 29 August

According to the Banking Law the credit agreement should be concluded in a written form and in

Also according to Article 4 of the Consumer Credit Act, credit agreements shall be prepared in writing, unless separate rules provide for another form. A credit agreement has to include, among others, the annual percentage rate of charge and the conditions under which it may be amended. Article 5 states that credit may be granted for the acquisition of goods or services and an agreement applying to this type of credit has to include additional information such as: description of the goods or services, prices in case of cash payment and when a credit is used (in order to enable consumers

right of possession is obtained by the consumer.

The article 15 of Consumer Credit Act deals with penalties in case of violation of the provisions of the present Act. Penalties depend on which rules were not met. If the credit contract was not delivered to the consumer or if advertisements relating to consumer credit do not contain full information on annual interest rate – the borrower can repay the credit without the interests or any other costs.

whose texts contain considerable infringement of requirements.

A person who offers to conclude an agreement shall be bound by his offer. The creditor may specify the period of validity.

There is no formal obligation. The borrower is not obliged to accept the offer.

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Generally at the moment of signing.

According to the Banking Law Act, Banking accounting books, abstracts these documents are, under

See 4.2

Yes of course.


Yes, the principles are the same as in point 1.1.

No, it doesn’t.

According to the Banking Law Act, the bank is obliged to notify immediately guarantors, in the way

the Civil Code, unless otherwise stated, the guarantors is responsible as a joint and several debtor.

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The Act on the amendments to the Act of 2 March 2000 on the protection of certain consumer rights

According to the article 11 of Consumer Credit Act the borrower has the right, without giving the reasons for it, to withdraw the agreement in 10 days since its signing.

14 days – since the conclusion of the contract or conclusion of information (in case of distance

10 days – in case of mortgage loans under the Consumer Credit Act.

A written announcement – according to the Consumer Credit Act, the lender has to provide the borrower such a pattern announcement by signing the agreement.

There are no special requirements.


In case of consumer credits - Yes.

Article 8 of the Consumer Credit Act empowers consumers to discharge their obligations before the

to pay interest rates after discharging the money, and if the credit was granted without interest rates, he can reduce commissions and charges proportionally to the time the repayment period was shortened.

Also the borrower has to inform the lender about the intention of early repayment in 3 days before accomplishing.

the day of the repayment.

Yes. Business regulation, but see point above and point 3.4.

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See point 3.4.

Banks regulate this question in the contract.

No

The loan can be transferred to the other property, but it depends on the bank if it accepts and allows that possibility to the borrower.


According to the Civil Code if one of a contracting parties stipulated an unreasonably disproportionate advantage at the conclusion of the contract by exploiting the other party’s situation, the second party

the contract.

amendment of civil code in 2005 (Act on changes on Civil Code and changes of some other Acts dated 7th

introduced limiting the interest on loans and bonds per annum to four times the lombard rate of the National Bank of Poland, regardless even of choice of law. Since 1st of February 2006 NBP lombard rate amounts 5,75%. It means that the maximum interest can not be higher than 23% annually. Parties of the legal act can not agree to pay higher interest. Even if they agree on higher interest, those contractual provisions will be ineffective and maximum interest shall apply.

The Act came into force on the 20th of February 2006 and applies to contracts coming into force after that.

The general provisions of the Civil Code regulate also the mortgage credit contracts.

See point 8.1.

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Withdrawal; the creditor/lender may grant a “respite” for payment.

According to the Civil Code the borrower is in default, if he does not meet his payment conditions. Creditor is entitled to demand default interest for that period.


See point 4.2. Generally it is not possible.


insolvency.


No.

Only mortgage banks have a limit of 100% of mortgage landing value for a single loan.

Credit institution apply their own regulations.

According to general rules the lender is obliged to give further information which is necessary for the

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PORTUGAL

1. THE SCOPE

The Civil Code.

Yes

As far as consumer protection is concerned, the consumer protection measures are not limited by the purpose of the loan or the existence of the surety.


Yes. Lenders have the legal duty to inform customers about the price of their services and any other

in credit advertisements the lenders must indicate the interest rate and the annual effective rate, which includes in this case the interest rate, fees, insurance costs and, in general, all costs relating to the advertised credit operation. There are no obligations in this case to disclose taxes, notary and register costs.

No. As far as this point is concerned, credit institutions have no special restrictions.


CGD applies the Code of Conduct for Home Loans without any restrictions. Concerning additional information, see the other answers to this Questionnaire.

charges not included in the annual effective rate. The lender doesn’t make any assumptions as to the evolution of the rate.

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No, these information requirements do not impact on credit intermediaries.


Yesinstitutions if the candidate borrower authorises consultation of the database in writing. Consultation is not compulsory.

No, the lender has no legal duty to provide advice to the candidate borrower.

No, when linked with the former question.

Portuguese practice regarding the conclusion of mortgage contracts shows that the contractual

to mortgage contracts.

There are general contractual conditions, terms or clauses that are forbidden for all contracts, but not especially for mortgage contracts.

There is no legal link between the goods/services contract and the credit contract.

It is not regulated, but it is authorised by way of the general principle of private autonomy.

There is no legal obligation, but it is commonplace.

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Credit institutions are legally obliged to provide the person concerned with the conditions of the loan contract, especially the annual effective interest rate.

The acceptance of the offer by the borrower takes place at the moment of the signature of the

is concluded at the same time as the mortgage deed before a notary between the bank and the borrower.

Under article 228º of the Civil Code, the proposed contract is binding on the applicant for the time he

acceptance to have arrived, under normal conditions, at their destination (article 228º, 1, of the Civil

In Portuguese practice, after acceptance of the customer’s proposal by the bank, the latter gives him

The credit agreement comes into effect at the moment of the signing of the loan contract.

There is no link between the contracts.

the wish of the parties, a solemn agreement.

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Not unilaterally, only with agreement.


No.

The legislation neither stipulates a time limit to the surety nor to its amount. Nevertheless, the latter must be determinate or determinable.

No. The borrower’s and the guarantor’s liability is a joint and several, that is, each is liable for the


Under certain conditions, the law does allow the contract to be revoked, especially when there is a

borrower must refund the entire amount of the loan.

If there is no contractual deadline, the other party can stipulate a reasonable term.

It must be with communication to the other party.

No.

See the previous answers.


all of the interest. However, the credit contract can stipulate the early repayment and its conditions

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Yes.

No.

See the previous answers.

No.

Normally, the credit contract stipulates that in this situation the loan terminates, and must be repaid.

contract can state that in this situation the loan terminates.


Yes. Under article 1.146 of the Civil Code, “a loan contract stipulating an annual interest rate, which exceeds the legal interest rates plus 3% or 5% depending on whether or not an in rem security

loan on the due date at a rate corresponding to 7% or 9% in excess of the legal rate, depending on whether or not an in rem security exists, is also considered to be usurious. Usury is also a crime

result in contract annulment or an amendment of the usurious legal acts by court decision.

See 8.1.

See 8.1.

There are no other legal restrictions applicable to interest.

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If the borrower doesn’t meet the payment conditions, the lender has the option of terminating the contract and demanding all of the capital, the interest in arrears and the interest to be paid until actual repayment is made, at the contractual rate of interest plus the increased rate or surcharge. The credit contract can however stipulate that the loan does not terminate, and that the borrower must pay a higher rate of interest on the arrears.

See 9.1.

See 9.1.

If the surety value falls, the lender can demand additional surety.


The law on general contractual conditions states that the lender can unilaterally change the interest

inform the borrower, who can then revoke the contract.


No.

See 11.1.


No.

No.

Yes.

No.

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SWEDEN

1. SCOPE

and the Swedish Consumer Agency have issued recommendations regarding consumer credits, which are generally followed by the mortgage institutions.

Yes.

No. The protection covers all kind of credits to consumers, but there are a few clauses, which only concern housing loans.


The lender has an obligation to give information about the annual percentage rate of charge.

institutions. The Act contains general rules on advertising. Furthermore, a recommendation by the Financial Supervisory Authority requires that the name of the lender be clearly shown at the advertising stage and that the marketing should not be misleading or intrusive; that would not conform with sound lending practices.

Swedish credit institutions disclose all information under the Code; no additional information is given to the consumers.


No, but there is a recommendation from the Financial Supervisory Authority stating that the credit institute should request such information from a credit register.

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Yes.

The equivalent method.

A recommendation by the Financial Supervisory Authority contains provisions on this issue. Only

credit cost indicated as a annual rate of interest calculated on the basis of the credit amount including, when applicable, installments, which are to be made during the course of the credit term.

No.

Yes, to the same extent as for lenders.


accessible to the lender. In reality, it is compulsory for the lender to consult the database even if there is no such requirement in the Act. However, it is included in the recommendation by the Financial Supervisory Authority. It is also connected with the rules regarding sound lending practices. There are no consequences for the lender if he does not consult the database. It is also possible to access the database on a cross-border basis, as long as the lender has a contractual agreement with the database provider.

It is not a legal duty but recommended by the Financial Supervisory Authority.

Yes, the Consumer Credit Act contains a provision that a lender, when dealing with the consumer, has a general obligation to follow sound lending practices. This is also included in a recommendation by the Swedish Consumers Agency.

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An “Unfair term” according to 36 § Law on Contract is a term that, regarding the content of the contract, and considering the circumstances under which the contract was signed or events that have occurred thereafter as well as circumstances in general, can be seen as unfair. There is no “black list” of terms regarding mortgage credits.

Yes, to the extent that the liability is joint and several between the supplier and the lender. If the borrower has a claim to make against the supplier regarding repayment of the purchase sum or damages, the borrower may take action either against the supplier or against the lender. There are

limited to the amount of money that he has already received from the borrower.

No.

borrower.


Yes, the borrower must receive a copy of the contract, in which the conditions are laid down. The offer must contain information about the borrowing rate, the total cost of credit and the conditions under which the lender is entitled to change the borrowing rate. The consequences of not complying with the legal requirements fall under the general rules of the Marketing Practices Act.

Standard agreements are not compulsory. The Swedish Bankers´ Association has produced a standard

According to the general rules in Swedish Contract Law, the creditor is bound by the offer for a time adequate for the borrower to accept or refuse the offer. However, the offered borrowing rate is not binding for the lender and can be changed at any point until the borrower signs the credit agreement.

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sales.

The acceptance takes place when the borrower signs the deed. Otherwise, no special requirements are needed.

There are no such general deadlines.

The credit agreement comes into effect when the borrower has signed the credit agreement.

No, there is no such legal link between the different credits.

A consumer credit contract is usually a consensual contract, but a mortgage credit contract is a “real” contract, since it is linked to the collateral.

Usually the borrower and the lender decide on the conditions together.


No, the law only protects the borrower. However, according to a recommendation by the Financial Supervisory Authority, guarantors shall have all the relevant information concerning his responsibility in the event that the borrower fails to repay.

No.

No.

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The borrower has no general right to withdraw from a mortgage credit contract, but since the right of early repayment is unlimited (except for the obligation to pay “interest difference compensation”

contract.

There is no deadline.

No.

No.


Yes, see the answer to question 6.1. There are no special terms.

See 6.1 above.

Yes.

the credit agreement.

multiplied by the difference between the interest rate under the credit and the interest rate plus one percentage point on Government Bonds with a maturity date corresponding to the remaining period

No.

No.

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No.

The loan may be transferred, but only if the lender accepts the new borrower. As a rule, the loan is not transferred.

This is optional for the borrower. No legislation exists relating to conditions and costs.


Yes, 31§ Law on Contracts stipulates “when a person exploits the distressed circumstances, lack of

which are manifestly disproportionate to the compensation paid or promised….such a legal act shall not be binding on the person exploited.

No.

The contract might be declared null and void by the court. The Financial Supervisory Authority, as the supervisory authority, could take action against the institution acting in a usurious manner.

When the lender increases the interest rate for mortgage loans, he should inform the borrower.


If the lender has made a reservation to this effect in the contract, the lender is entitled to repayment prior to the due date.

exceeding 10% of the credit debt, or 5% of the credit debts, and the delay relates to two or more installments, which were due for payment at different times, or;

is evading payment of his debts.

In the cases mentioned above:

agreement for not less than three months, the lender is entitled to obtain repayment upon the expiry

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the creditor may take action against the borrower to recover the debts.

The creditor is entitled to claim the outstanding debt and the unpaid interest due, as well as the costs related to recovering the debt with assistance from an external debt collector company.

Yes, if this is provided for in the credit contract.

If the borrower/pledger grossly or purposefully neglects the duty to maintain the building, the lender has the right to repayment prior to the due date, if he has made a reservation to this effect is the


The creditor is entitled to change the interest rate to the disadvantage of the consumer, if this is

other increases in costs, which the lender could not reasonably have foreseen at the time when the agreement was entered into. However, the creditor is only entitled to repayment prior to the due date if the lender has made a reservation to this effect in the agreement. See also question 9.1.


No.


No. Mortgage institutes generally apply a maximum LTV of 75-80 % depending on the internal credit policy rules of each institute.

According to current banking legislation, a bank/mortgage institution has to be reasonably sure of the

Yes, the lender is obliged to notify the borrower of variations in the interest rate or charges. Furthermore, in the recommendation by the Financial Supervisory Authority, it is stipulated that the

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No.

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THE UNITED KINGDOM

PRELIMINARY OBSERVATION

Mortgage regulation under statute came into effect in the UK in October 2004. Since then 1st charge

and Markets Act 2000. 2nd charge mortgages are regulated under the Consumer Credit Act 1974 as amended.

1. SCOPE

The Consumer Credit Act 1974 applies to 2nd charge loans secured on the borrower’s property. Where

procedures.

The Unfair Terms in Consumer Contracts Regulations 1994/1999 can be used to challenge terms in mortgage contracts that consumers consider to be unfair.

The Financial Ombudsman Service deals with complaints from customers of banks and building societies about mortgage lenders.

The FSA regime for 1st

All lenders and intermediaries who lend on or arrange “regulated mortgage contracts” need to be

how lenders and intermediaries do business with consumers.

The Financial Ombudsman Service applies to all loans made or arranged by lenders and mortgage intermediaries.

The Consumer Credit Act 1974 continues to apply to “second-charge” loans.

The Unfair Terms in Consumer Contracts Regulations 1994 (as amended by the Unfair Terms in

bodies of persons. This means that only companies and other incorporated bodies are excluded from the Act’s provisions.

FSA regime

the borrower, at least 40% of which will be occupied by the borrower or his/her immediate family.

of the loan is covered by the FSA regime.

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Under Consumer Credit Act 1974 provisions, the purpose of the loan is relevant. The rules are complex but, broadly speaking:

2nd charge lending is covered by the Act.

Loans under £25,000 are included, but loans above this amount are not. Loans above £25,000 will be included from April 2008.

Where a loan under £25,000 is for the purchase of land or the provision of a dwelling on land, it will not be covered, provided the lender is an “exempt body”. Banks and building societies are, typically, exempt bodies. From April 2008 loans over £25,000 for business purposes will also be exempt and this will exempt most Buy-to-Let-lending.

lender also provided the original loan to purchase the property or build the premises, or if an exempt

Loans under £25,000 which are for a non-housing purpose, for example, to buy a car, are covered by the Act.

Revisions to the Consumer Credit Act:

The UK Government is currently consulting on amendments to the UK’s domestic consumer credit

all second-charge loans to consumers within scope of the Act.

The purpose of the loan is irrelevant.


FSA regime:

The FSA’s detailed rules about the content of advertisements for mortgages apply to 1st and 2nd charge loans.

2

must not be misleading, and certain words and expressions which are considered objectionable are banned. Advertisements must also provide the reader with a reasonable picture of the terms on which credit is likely to be granted, in particular the amount and the rate of the credit charge. They

such as the applicant’s age, occupation, place of residence and so on.

st :

All advertisements need to comply with the FSA’s rules.

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The FSA rules require lenders and intermediaries to give consumers prescribed pre-application

knowledge of the ESIS and it broadly meets the ESIS’ requirements.


No.

2

If a credit advertisement includes an interest rate then it must also show the APRC. The APRC must be calculated in accordance with three sets of Regulations: the Consumer Credit (Total Charge for

Where an advertisement shows an interest rate then it also has to show the APRC. The APRC must also be included in the pre-application illustration.

Yes: the rules apply to credit intermediaries as well as lenders.


The UK has two main credit reference agencies: Experian and Equifax. These hold sophisticated databases of information – both “positive” and “negative” on consumers. The rules which apply to how the data is collected, kept and used are set out in our Data Protection legislation. Consumers

be kept and may be used for credit referencing purposes. It is not compulsory for lenders to consult the databases when deciding whether or not to lend. Access to databases is governed by a principle of “reciprocity”: a lender may only obtain data from a database if it contributes to that database on an equal basis. Put simply - you can’t get out more than you put in. Information from UK databases is not currently available on a cross-border basis. The controllers of the data would need to be very

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Use of the credit reference agencies continues, in accordance with the data protection legislation.

FSA regime:

to offer advice, and if they do so, will have to follow certain rules.

FSA regime:

The FSA rules introduce a concept of responsible lending.

Current position:

No such liability for mortgage loans but Section 75 of the Consumer Credit Act 1974 does provide for joint and several liability as described above in respect of 2nd charge lending.

If a consumer takes out an interest-only mortgage, he will usually need to buy a repayment

investment products is regulated under the Financial Services Act 1986.

general insurance products. Sales are covered by the FSA’s Insurance Conduct of Business Rules

Life insurance remains a matter for the consumer to decide, as does insurance to protect the mortgage payments if the consumer becomes ill or loses his job.

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FSA Regime:

borrower a formal mortgage offer set out in a format prescribed by the FSA. Failure to comply with this requirement will render the loan unenforceable.

out.

Under the Consumer Credit Act 1974, the loan is not concluded until the borrower signs the copy of the proposed credit agreement. If either the lender or borrower withdraws from a proposed credit agreement, this terminates any outstanding loan offer. Any fees paid in advance by the borrower must be repaid to him.

Under the FSA rules borrowers are not required to sign mortgage offers received from lenders.

The FSA Regime does not require a cooling-off period for regulated mortgage contracts. This is

“completion”.

In relation to loans covered by the Consumer Credit Act, the borrower must sign and return the copy of the proposed credit agreement.

In practice, the procedure is much the same whether the loan is regulated under the Consumer Credit Act or not. However, as the transfer and mortgage of land in the UK have their own special formal and procedural features, they are invariably handled by a solicitor or other conveyancing specialist on behalf of the borrower and lender.

Current position:

Until the offer is accepted and the loan transaction concluded, either the lender or the borrower is free to withdraw from what is merely a prospective agreement.

Current position:

The credit agreement comes into effect when the agreement and other documents have been executed and the loan transaction completed. If the loan is to be released to the borrower in stages, for example, as building work proceeds, the usual procedure in the UK is for the documentation to be executed for the full amount of the loan at the outset, although, obviously the borrower’s liability at

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to execute separate documentation for each sum released.

which is formally registered at the Land Registry. Any subsequent loans take second, third, fourth place in priority and these are therefore less common for large loans required for house purchase. Second charge loans are more common in respect of repairs or alterations to a property. Where this

suggested in the question – the two loans are separate and independent of each other.

consent of both parties and where a mortgage involves the taking of security over land or buildings, it will be ‘real’ because land and buildings are ‘real estate’. Moreover, because of the economic importance of contracts secured on land, the legal procedures for transferring or mortgaging ownership of land have always been more formal than those regulating the transfer or mortgage of other forms of property.

Yes, even where a loan is regulated under the Consumer Credit Act 1974, a lender is generally free to specify the conditions upon which it is prepared to lend. It is then up to the borrower to decide whether to accept the loan on those terms.


The FSA regime is silent on the subject of guarantors. For loans regulated under the Consumer Credit Act 1974, a guarantor must be given a copy of the guarantee document, which must be in a format prescribed by the legislation. This document must contain all the terms of the loan and must be signed by, or on behalf of, the guarantor. The guarantor must also be given a copy of the actual loan agreement between the lender and borrower. The Guarantee must also contain a prescribed Statement of Rights, with text as follows:

“The Consumer Credit Act 1974 covers this guarantee and lays down certain requirements for your protection. If they are not carried out, the creditor/owner cannot enforce the guarantee against you without a court order.

Until the agreement between the creditor and debtor has been made, you can change your mind about giving the guarantee. If you wish to withdraw, you must give written notice to the creditor which must reach him before the main agreement is made. Once it has been made you can no longer change your mind.

the guarantee. But you cannot be made to pay more than the debtor could have been made to pay. However, if the debtor fails to keep his side of the agreement, the creditor must send him a default

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The Consumer Credit Act does not apply to loans over £25,000 but this limit is abolished in April 2008.


No – the general right of cancellation does not apply to a regulated agreement secured on the land. However, a loan can be redeemed at any time under general mortgage law and practice.

See answer to 6.1 above.





There is no legal entitlement to repay early, but this is always possible. The lender may make a charge – see answer below.

The FSA rules allow lenders to make an early repayment charge, but the amount (or way in which the

No.

Any conditions would have to be made clear to the borrower before the loan is concluded.

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Current position:

This is not applicable under UK law.

See answer below.

Yesrepayment conditions imposed by the existing lender. Where the borrower goes to another lender,

the property. There will be costs associated with this, although some lenders offer to pay the transfer costs as part of the new mortgage deal offered to the borrower.


Current position:

No: Laws against usury were repealed in the UK in 1854. The provisions of the Unfair Terms in Consumer Contracts Regulations provide a safeguard against extortionate or unfair loans. 2nd charge loans regulated under the Consumer Credit Act 1974 will be subject to the new «unfair relationship» provisions from April 2007.

The term ‘usury’ is not, as explained above, applicable under current UK law. The Courts’ powers are potentially very important.

No.

9. LEGAL CONSEQUENCES IN THE EVENT OF INFRINGEMENT OF THE LOAN CONTRACT BY THE BORROWER.

Current position:

Ultimately, the lender has the right to foreclose on the loan contract. Details of the lender’s contractual and legal rights under the Consumer Credit Act 1974 (for 2nd charge loans where regulated under the

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FSA Regime:

The FSA rules require lenders to contact borrowers as soon as the outstanding debt amounts to two months’ unpaid payments. Interest due may be added to the sum owed, but not interest on the interest. No punitive sums may be added.

Not under the Consumer Credit Act 1974. For secured loans which are not regulated by that Act, the loan agreement will usually provide for arrears to be added to the capital. This means that the arrears will themselves attract interest.

Current position:

Neglect of such a duty, if it was prescribed in the loan agreement, would amount to breach of contract.


Terms in Consumer Contracts Regulations. Broadly, lenders may not set contract terms which allow

so. Although lenders have a unilateral right to set and change interest rates, even this is subject to restrictions within the terms of the Regulations. Additional detail relating to variations of contracts regulated by the Consumer Credit Act 1974 were set out in our response to Question 8 of the 1992 Study.


No.


No.

Current position:

Restrictions are effectively market-driven. It would not be prudent for a lender to grant loans without taking into account the consumer’s repayment capacity.

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conclusion of their contract.

FSA rules require that commission paid or received is disclosed by both lenders and intermediaries.

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